RCISE 12A-4 Predetermined Overhead Rate; Overhead Variances [LO3, LO4] Norwall C

Question

RCISE 12A-4 Predetermined Overhead Rate; Overhead Variances [LO3, LO4] Norwall Company's variable manufacturing overhead should be $3.00 per standard machine-hour and its fixed manufacturing overhead should be $300,000 per period. a. The denominator activity of 60,000 machine-hours is used to compute the predetermined b. At the 60,000 standard machine-hours level of activity, the company should produce 40,000 c. The company's actual operating results were: The following information is available for a recent period: overhead rate. units of product. 42,000 Actual fixed overhead cost . . $302,400 .. . . . Required: 1. Compute the predetermined overhead rate and break it down into variable and fixed cost ele- ments. 2. Compute the standard hours allowed for the actual production. 3. Compute the variable overhead rate and efficiency variances, and the fixed overhead budget and volume variances

Explanation / Answer

2)

a Pre-determined OH Rate Variable OH Rate                       3 Fixed OH          300,000 Machine hours            60,000 Fixed OH rate                       5 Pre-determined OH Rate                       8 b Standard Hours for actual production Total Machine hours            60,000 Total Units            40,000 STd Hours                 1.50 c Variable OH Rate and Efficiency variances Rate Variance = Actual Hours * (Actual price - Standard price) Actual Hours            64,000 Actual Price 2.9 =185600/64000 Standard price                       3 Rate Variance = 64,000*(2.9-3)            (6,400) Efficiency Variance = Standard rate * (Actual hours - Standard hours) Standard rate                       3 Actual Hours            64,000 Standard Hours      63,000.00 Efficiency Variance              3,000 d Fixed Overheads Budget and Volume Variance Fixed Overheads Budget Variance = Budgeted Fixed OH - Actual Fixed OH = 300,000-302,400 = 2,400 Fixed Overhead Volume Variance = Fixed OH Rate per unit * (Actual units - Budgeted units) Fixed OH Rate per unit = Std rate per hour* Std hours = 5*1.5 = 7.5 Fixed Overhead Volume Variance = 7.5*(42000-40000) = 15,000

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