Data P10-3: Harper Company assembles all of its products in the Assembly Departm

Question

Data P10-3: Harper Company assembles all of its products in the Assembly Department. Budgeted cost for the operation of this department for the year have been set as follows: HARPER COMPANY Budget costs for Assembly Department: Variable costs: Direct materials $900,000 Direct labor 675,000 Utilities 45,000 Indirect labor 67,500 Supplies 22,500 Total variable costs 1,710,000 Fixed costs: Insurance 8,000 Supervisory Salaries 90,000 Depreciation 160,000 Equipment rental 42,000      Total fixed costs 300,000 Total budgeted costs $2,010,000 Budgeted direct labor-hours 75,000 Part 3: Actual activities and costs: Actual direct labor-hours worked 73,000 Standard direct labor-hours allowed 70,000 Actual variable manufacturing overhead cost incurred $124,100 Actual fixed manufacturing overhead cost incurred 301,600 Since the assembly work is done mostly by hand, operating activity in this department is best measured by direct labor-hours. The cost formulas used to develop the budgeted costs above are valid over a relevant range of 60,000 to 90,000 direct labor-hours per year. Required: 1. Prepare a manufacturing overhead flexible budget for the Assembly Department using increments      of 15,000 direct labor-hours. (The company does not include direct materials and direct labor      costs in the flexible budget.) 2. Assume that the company computes predetermined overhead rates by department. Compute      the rates that will be used to apply Assembly Department overhead costs to production. Break      this rate down into variable and fixed cost elements. 3. Notice the information labeled part 3 above.      a. A T-account for manufacturing overhead costs in the Assembly Department for the year is           given on the following answer sheet. Determine the amount of applied overhead cost for the           year, and compute the under-or-over applied overhead.      b. Analyze the under-or-overapplied overhead in terms of the variable overhead spending and           efficiency variances and the fixed overhead budget and volume variances. HARPER COMPANY Flexible Budget-Assembly Department Budgeted direct labor-hours Cost Formula Direct Labor-Hours Item per DLH Variable costs: Utilities Indirect labor Supplies Total variable Fixed costs: Insurance Supervisory Salaries Depreciation Equipment rental Total fixed Total overhead costs HARPER COMPANY Overhead Rates Variable overhead rate: Variable overhead costs Budgeted DLH Variable overhead rate Fixed overhead rate: Fixed overhead costs Budgeted DLH Fixed overhead rate Total overhead rate: Total overhead costs Budgeted DLH Total overhead rate Requirment 3 (a) HARPER COMPANY Variable Overhead Spending and Efficiency Variances Manufacturing Overhead Actual costs 425,700 Applied costs Underapplied overhead Analysis of under- or overapplied overhead: Variable overhead variances: Actual hours Actual hours Standard Actual Actual Standard Standard of input of input for output hours rate hours rate @ actual rate @ std. rate @ std. rate Spending Variance Efficiency Variance Fixed overhead variances: Budgeted Fixed OH Cost Actual Fixed Fixed Applied to OH Cost OH Cost Work in Process Budget Variance Volume Variance Overhead variances summary: Variable overhead:     Spending variance     Efficiency variance Fixed overhead:     Budget variance     Volume variance Underapplied overhead Data P10-3: Harper Company assembles all of its products in the Assembly Department. Budgeted cost for the operation of this department for the year have been set as follows: HARPER COMPANY Budget costs for Assembly Department: Variable costs: Direct materials $900,000 Direct labor 675,000 Utilities 45,000 Indirect labor 67,500 Supplies 22,500 Total variable costs 1,710,000 Fixed costs: Insurance 8,000 Supervisory Salaries 90,000 Depreciation 160,000 Equipment rental 42,000      Total fixed costs 300,000 Total budgeted costs $2,010,000 Budgeted direct labor-hours 75,000 Part 3: Actual activities and costs: Actual direct labor-hours worked 73,000 Standard direct labor-hours allowed 70,000 Actual variable manufacturing overhead cost incurred $124,100 Actual fixed manufacturing overhead cost incurred 301,600 Since the assembly work is done mostly by hand, operating activity in this department is best measured by direct labor-hours. The cost formulas used to develop the budgeted costs above are valid over a relevant range of 60,000 to 90,000 direct labor-hours per year. Required: 1. Prepare a manufacturing overhead flexible budget for the Assembly Department using increments      of 15,000 direct labor-hours. (The company does not include direct materials and direct labor      costs in the flexible budget.) 2. Assume that the company computes predetermined overhead rates by department. Compute      the rates that will be used to apply Assembly Department overhead costs to production. Break      this rate down into variable and fixed cost elements. 3. Notice the information labeled part 3 above.      a. A T-account for manufacturing overhead costs in the Assembly Department for the year is           given on the following answer sheet. Determine the amount of applied overhead cost for the           year, and compute the under-or-over applied overhead.      b. Analyze the under-or-overapplied overhead in terms of the variable overhead spending and           efficiency variances and the fixed overhead budget and volume variances. HARPER COMPANY Flexible Budget-Assembly Department Budgeted direct labor-hours Cost Formula Direct Labor-Hours Item per DLH Variable costs: Utilities Indirect labor Supplies Total variable Fixed costs: Insurance Supervisory Salaries Depreciation Equipment rental Total fixed Total overhead costs HARPER COMPANY Overhead Rates Variable overhead rate: Variable overhead costs Budgeted DLH Variable overhead rate Fixed overhead rate: Fixed overhead costs Budgeted DLH Fixed overhead rate Total overhead rate: Total overhead costs Budgeted DLH Total overhead rate Requirment 3 (a) HARPER COMPANY Variable Overhead Spending and Efficiency Variances Manufacturing Overhead Actual costs 425,700 Applied costs Underapplied overhead Analysis of under- or overapplied overhead: Variable overhead variances: Actual hours Actual hours Standard Actual Actual Standard Standard of input of input for output hours rate hours rate @ actual rate @ std. rate @ std. rate Spending Variance Efficiency Variance Fixed overhead variances: Budgeted Fixed OH Cost Actual Fixed Fixed Applied to OH Cost OH Cost Work in Process Budget Variance Volume Variance Overhead variances summary: Variable overhead:     Spending variance     Efficiency variance Fixed overhead:     Budget variance     Volume variance Underapplied overhead

Explanation / Answer

1) HARPER COMPANY Flexible Budget-Assembly Department Budgeted direct labor-hours Direct Labor-Hours 60,000 75,000 90,000 Item per DLH Variable costs: Utilities $0.6 $36,000 $45,000 $54,000 Indirect labor $0.9 $54,000 $67,500 $81,000 Supplies $0.3 $18,000 $22,500 $27,000 Total variable costs $1.8 $108,000 $135,000 $162,000 Fixed costs: Insurance $8,000 $8,000 $8,000 Supervisory Salaries $90,000 $90,000 $90,000 Depreciation $160,000 $160,000 $160,000 Equipment rental $42,000 $42,000 $42,000 Total fixed $300,000 $300,000 $300,000 Total overhead costs $408,000 $435,000 $462,000 2) HARPER COMPANY Overhead Rates Variable overhead rate: Variable overhead costs $108,000 $135,000 $162,000 Budgeted DLH 60000 75000 90000 Variable overhead rate = VOC/DLH $1.8 $1.8 $1.8 Fixed overhead rate: Fixed overhead costs $300,000 $300,000 $300,000 Budgeted DLH 60000 75000 90000 Fixed overhead rate $5 $4 $3.33 Total overhead rate: Total overhead costs $408,000 $435,000 $462,000 Budgeted DLH 60000 75000 90000 Total overhead rate $6.8 $5.8 $5.13

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