Chilczuk, S.A., of Gdansk, Poland, is a major producer of classic Polish sausage
ID: 2565332 • Letter: C
Question
Chilczuk, S.A., of Gdansk, Poland, is a major producer of classic Polish sausage. The company uses a standard cost system to help control costs. Manufacturing overhead is applied to production on the basis of standard direct labor-hours. According to the company’s flexible budget, the following manufacturing overhead costs should be incurred at an activity level of 24,000 labor-hours (the denominator activity level):
Variable manufacturing overhead cost $102,000
Fixed manufacturing overhead cost 150,000
Total manufacturing overhead cost $252,000
During the most recent year, the following operating results were recorded:
Activity:
Actual labor-hours worked 21,000
Standard labor-hours allowed for output 22,000
Cost:
Actual variable manufacturing overhead cost incurred $117,000
Actual fixed manufacturing overhead cost incurred $132,000
At the end of the year, the company’s Manufacturing Overhead account contained the following
data:
Actual...... 249,600 Applied ......231,000
18,600
Management would like to determine the cause of the $18,600 underapplied overhead
Compute the predetermined overhead rate. Break the rate down into variable and fixed cost elements.
(Round your answers to 2 decimal places.)
Total rate _______ per jour
Variable element__________per hour
Fixed element___________per hour
Show how the $231,000 Applied figure in the Manufacturing Overhead account was computed
3. Analyze the $18,600 underapplied overhead figure in terms of the variable overhead rate and efficiency variances and the fixed overhead budget and volume variances. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)
Variable Overhead:
Rate variance__________
Efficieny variance________
Fixed overhead:
Budget variance__________
Volume variance_______
Required: 1.Compute the predetermined overhead rate. Break the rate down into variable and fixed cost elements.
(Round your answers to 2 decimal places.)
Total rate _______ per jour
Variable element__________per hour
Fixed element___________per hour
2 .Show how the $231,000 Applied figure in the Manufacturing Overhead account was computed
3. Analyze the $18,600 underapplied overhead figure in terms of the variable overhead rate and efficiency variances and the fixed overhead budget and volume variances. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)
Variable Overhead:
Rate variance__________
Efficieny variance________
Fixed overhead:
Budget variance__________
Volume variance_______
Explanation / Answer
1. Predetermined overhead rate = Total manufacturing overhead cost / Labor hours = $252000/24000 = $10.50 per labor hour
Total rate = $10.50
Variable element = $102000 / 24000 = $4.25
Fixed element = $150000 / 24000 = $6.25
2. Standard labor hours allowed = 22000
Overhead applied = 22000 x $10.50 = $231000
3. Variable Overhead:
Rate variance
(AH x AR) - (AH x SR) = ($117000) - (21000 x $4.25) = $117000 - $89250 = $27750 U
Efficiency variance
(AH x SR) - (SH x SR) = (21000 x $4.25) - (22000 x $4.25) = $89250 - $93500 = $4250 F
Fixed Overhead:
Budget variance
Budgeted overheads - Actual overheads = $150000 - $132000 = $18000 F
Volume variance
Budgeted overheads - Absorbed overheads = $150000 - (22000 x $6.25) = $150000 - $137500 = $12500 U
Note: Please check the actual in the manufacturing overheads is mentioned as $249600 though it is $249000 ($117000 + $132000). Thus the underapplied overhead is also $18000 ($249000 - $231000) and not $18600.
Variable Overhead: Rate variance 27750 U Efficiency variance 4250 F Fixed Overhead: Budget variance 18000 F Volume variance 12500 U 18000 URelated Questions
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