Munich Ltd. uses a combined overhead rate of $ 2.90 per machine hour to apply ov

Question

Munich Ltd. uses a combined overhead rate of $ 2.90 per machine hour to apply overhead to products. The rate was developed at an expected capacity of 264,000 machine hours; each unit of product requires two machine hours to produce. At 264,000 machine hours, expected fixed overhead for Munich Ltd. is $ 250,800.

During November, the company produced 11,960 units and used 24,300 machine hours. Actual variable overhead for the month was $ 47,100 and fixed overhead was $ 20,000. Calculate the overhead spending, efficiency, and volume variances for November.

Explanation / Answer

1 machine hour =2.9$
capacity -264000 hours
each unit requirement = 2 hours =2.9*2 =5.8 $ /unit
expected overhead =250800$
expected production =250800/5.8=43242 units
units produced in November =11960
hours used =24300
variable overhead for the month =47100$
fixed overhead =20000$
the over head spending =47100+20000 =67100$
efficiency =11960/43242 =0.2765 =27.65%
Volume variance: The difference between two dollar amounts of fixed overhead cost. The first amount equals the total budgeted overhead cost. The second number is the overhead cost allocated to products using the predetermined fixed overhead rate.

=20000-43242 =(-23242)

cheers :)

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