Norwall company variable manufacturing overhead should be $3.00 per standard mac

Question

Norwall company variable manufacturing overhead should be $3.00 per standard machine hr and its fixed manufacturing overhead should be $300,000 per period. The following information is available for a recent period.
a.The denominator activity of 60,000 machine hrs is used to compute the predetermined overhead rate.
b. At the 60,000 standard machine hrs level of activity the company shoudl produce 40,000 units of products.
c. The companys actual operating results were
Number of units produced 42,000
Actual machine hrs 64,000
Actual variable overhead cost 185,600
Actual fixed overhead cost 302,400
1. Compute the predetermined overhead rate and break it down into variable and fixed cost elements. 2.Compute the standard hrs allowed for the actual production. 3. COmpute the variable overhead rate and efficency variances and the fixed overhad budget and volume variances.

Explanation / Answer

1. Compute the predetermined overhead rate and break it down into variable and fixed cost elements. 60,000 machine hrs is used to compute the predetermined overhead rate. variable manufacturing overhead should be $3.00 per standard machine hr fixed manufacturing overhead should be $300,000 per period. SO predetermined overhead rate = Fixed OH+ Var OH = 300000+60000*3 = $480,000 Total Fixed OH = $300,000 Total Var OH = 60000*$3 = $180,000 ...............................Ans (1) 2.Compute the standard hrs allowed for the actual production 60000 Std Hrs should poduce 40000 units So Each unit willl consume 60000Hrs/40000 = 1.5 Hr per unit -> STd Hr per unit ....(A) Actual units produced = 42000 So STd Hrs allowed for Actual prod = Actual Units *Std Hr pu =42000*1.5 = 63,000hrs ..Ans(2) 3. COmpute the variable overhead rate and efficency variances and the fixed overhad budget and volume variances Variable-overhead Rate var (VOH_SV) = actual variable overhead – (Actual Hr × Std Var Rate) VOH_SV = (185600 - (64000*$3)) = -$6400 = 6400F Variable-overhead efficiency variance (VOH_EV) = Std Var Rate(Actual Hrs – Std Hrs) ie VOH_EV =$3*(64000 - 63000) = $3000 = 3000U Fixed-overhead budget var (FOH_BV) = actual fixed OH – budgeted fixed OH ie FOH_BV = $302400 - $300000 = $2400 = 2400U Fixed-overhead volume var (FOH_VV) = budgeted fixed OH – applied fixed OH Applied Fixed OH = Pre Determined OH rate*Std Hrs ie Applied Fixed OH= (Budgeted Fixed OH/Actual Hrs)*Std Hrs ie Applied Fixed OH= (300000/64000)*63000 = $295,313 ie FOH_VV = $300,000- $295,313 = $4,688 = 4688F

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