m 11.40 Overhead Variances cim Company produces microwave ovens Extrim\'s plant
ID: 2556760 • Letter: M
Question
m 11.40 Overhead Variances cim Company produces microwave ovens Extrim's plant in Sault Ste. Marie uses a standard p costing system. The standard costing system relies on direct labour hours to assign overhead costs lo roduction. The direct labour standard indicates that four direct labour hours should be used for OBJECTIVE microwave unit produced. (The Sault Ste. Marie plant produces only one model.) The normal uction volume is 120,000 units. The budgeted overhead for the coming year is as follows: every Fixed overhead Variable overhead At normal volume $1,286,400 888,000 Extrim applies overhead on the basis of direct labour hours ng the year, Extrim produced 119,000 units, worked 487.900 direct labour hours, and incurred actual fixed overhead costs of $1.3 million and actual variable overhead costs of $927.010 Required: 1. Calculate the standard fixed overhead rate and the standard variable overhead rate 2. Compute the applied fixed overhead and the applied variable overhead. What is the total Check figures: I. Standard variable overhead rate $1.85 per direct labour hour fixed overhead variance? Total variable overhead variance? CONCEPTUAL CONNECTION Break down the total fixed overhead variance into a spend- ing variance and a volume variance. Discuss the significance of each CONCEPTUAL CONNECTION Compute the variable overhead spending and efficiency variances. Discuss the significance of each 3. Volume variance 3. = $10,720 U 4. Efficiency variance $22,015 UExplanation / Answer
Req 1 Budgeted Units: 120,000 units Std Hours per unit: 4 DLH Budgeted hours (120,000*4): 480,000 DLH Budgetd Fixed OH: $1286400 Budgeted Vvariable OH: $ 888,000 Std fixed OH rate: Budgeted Fixed OH / Budgeted DLh $ 1286400 /480,000 DLH = $2.68 per DLH Std Variable OH rate: Budgeted Variable OH / Budgeted DLH $888000 /480,000 = $ 1.85 per DLH Req 2: Applied Fixed OH (Actual labour hours*OH rate): 487900 DLH*2.68= $1307,572 Applied Variable OH (Actual labour hours*OH rate): 487900 DLH *1.85 = $902,615 Fixed OH Variance: Std Fixed OH for actual output-Actual Fixed OH (119000 units @4 * $2.68) - $1300,000 = $ 24,320 U Vvariable OH variance: Std variable OH for actual output - Actual variable OH (119000 units@4 hrs*1.85) - $927010 = $46,410 U Req 3: Fixed OH spending variance= Budgeted OH -Actual fixed OH 1286,400 -1300,000 = 13,600 U Fixed OH Volume Variance: Std Oh for actual output -Budgeted Fixed OH (119000*4*2.68) - 1286400 = 10,720 U Fixed Spending variance signifies the difference in actual amount spent than planned amouunt. Fixed Volume Variance signifies the difference of amount due to change in volume of production. Req 4: Variable OH Spending variance = Actual hours (Std OH rate-Actual rate) 487900*1.85 - $ 927010 = $24,395 U Variable OH Efficiency variance = Std OH rate (Std hours-Actual Hours) 1.85 (119000*4 - 487900) = 22015 U Variable rate variance signfies the difference due to prices of various items changes. Variable Efficiency variance signifies the difference due to actual labour hours consumed for more than std hours set.
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