The information shown on the next page was taken from the annual manufacturing o

Question

The information shown on the next page was taken from the annual manufacturing overhead cost budget of Marantha Company.

Variable manufacturing overhead costs: $33,000

Fixed manufacturing overhaed costs: $19,800

Normal production level in labor hours: 16,500

Normal production level in units: 4,125

Standard labor hours per unit: 4

During the year; 4,000 units were produced, 16,100 hours were worked, and the actual manufacturing overhead was $54,000. Actual fixed manufacturing overhead costs equaled budgeted fixed manufacturing overhead costs. Overhead is applied on the basis of direct labor hours.

(a) Compute the total, fixed, and variable prederterminded manufacturing overhead rates.

(b) Compute the total, controllable, and volume overhead variences.

(c) Briefly interpret the overhead controllable and volume variences computed in (b).

Explanation / Answer

Hi,

Please find the answers as follows:

a)

b)

Overhead Controllable Variance = Actual Overhead - Budgeted allowance based on standard hours allowed = 54000 - (19800 + 4*4000*2) = 2200 (U)

Overhead Volume Variance = Standard Rate*(Actual Hours - Standard Hours) = 1.2*(16500 - 16100) = 600 (U)

Total Overhead Variance = 2200 + 600 = 2800 (U)

c) All the variances were Unfavorable from the company's point of view.

Thanks

Amount Hours Rate Variable Overhead 33000 16500 2 Fixed Overhead 19800 16500 1.2 Total Overhead 52800 16500 3.2

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