Firm has a fully automated production facility in which almost 97% of overhead c

Question

Firm has a fully automated production facility in which almost 97% of overhead cost are driven by machine hours. As a cost accountant, you have the following overhead variances:
Variable overhead spending variance: $34,000 F
Variable overhead efficiency variance: 41,200 F
Fixed overhead spending variance: 28,000 U
Fixed overhead volume variance: 20,000 U

Budgeted fixed overhead for the month is $1,000,000: the predetermined variable and fixed overhead rates are, respectively, $20 and $40 per machine hour. Bugeted capacity is 20,000 units.

Please solve for xxx:

Actual machine hours xxx * $20= xxx MH

Machine hours applied xxx * $40= xxx MH

Explanation / Answer

Budgeted fixed overhead = $1,000,000
Budgeted machine hours = 1,000,000/40 = 25,000 Hours

Fixed Overhead

(Standard hour for actual output x Standard rate per hour ) - Budgered fixed overhead = -20000

(Standard hour for actual output x 40) - 1000000 = -20000

Standard hour for actual output = 980000/40 = 24500 Hours

Variable Overhead

(Standard hour for actual output x Standard rate per hour ) - (Actual for actual output x Standard rate per hour ) = 41200

(24500 x 20) - (Actual hour for actual output x 20 ) = 41200

490000 - (Actual hour for actual output x 20 ) = 41200

-(Actual hour for actual output x 20 ) = -448800

Actual hour for actual output = 448800/20 = 22440 hours

Thus, actual machine hours = 22440 Hours

Hope this helps!

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