Weller Company’s flexible budget for manufacturing overhead (in condensed form)

Question

Weller Company’s flexible budget for manufacturing overhead (in condensed form) follows:
    Cost
    Formula
         (per machine         Machine-Hours  
Overhead Costs            hour)  8,000    9,000    10,000
Variable costs   $1.05  $ 8,400 $ 9,450 $10,500
Fixed costs       24,800   24,800   24,800
Total Overhead Costs    $33,200 $34,250 $35,300

The following information is available for a recent period:
a. The denominator activity of 8,000 machine-hours was chosen to compute the predetermined overhead rate.
b. At the 8,000 standard machine-hours level of activity, the company should produce 3,200 units of product.
c. The company’s actual operating results were as follows:

  Number of units produced  3,500
  Actual machine-hours   8,500
  Actual variable overhead costs         $9,860
  Actual fixed overhead costs         $25,100
Required:
1. Compute the predetermined overhead rate and break it down into variable and fixed cost elements.
2. What were the standard hours allowed for the year’s output?
3. Compute the variable overhead spending and efficiency variances and the fixed overhead budget and volume variances.

Predetermined Overhead Rate =      ________________

Variable Portion of the Predetermined Overhead Rate = ________________

Fixed Portion of the Predetermined Overhead Rate =  ________________

The Standard Hours Allowed for the year’s output =   ________________

Variable Overhead Spending Variance =     ________________

Variable Overhead Efficiency Variance =     ________________

Fixed Overhead Budget Variance =     ________________

Fixed Overhead Volume Variance =     ________________

Explanation / Answer

Req 1: Pre-determined OH rate: Variable OH per MH 1.05 Fixed H per MH (24800/8000) 3.1 OH rate per MH 4.15 Req 2: Actual output: 3500 units Std hours per unit (8000/3200) 2.5 Std hours allowed 8750 Req 3: Vriabble Oh spending Variance: Std OH cost for actual output - Actual variable OH 8750 hours*1.05 - 9860 = $ 672.50 Unfav Variable OH efficiency variance: Std rate per hour (Std hours-Actual hours) 1.05 (8750-8500)= 262.50 Favorable Fixed OH budget variance: Budgeted Fixed OH-Actual fixed OH 24800 -25100 = 300 Unfavorable Fixed OH volume variance: Std Fixed Oh for actual output -Budgetdd Fixed Oh 8750*3.10 - 24800 = 2325 Favorable

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