Fixed Overhead Rate; Denominator Level; Two-Variance Analysis Overhead informati
ID: 2476518 • Letter: F
Question
Fixed Overhead Rate; Denominator Level; Two-Variance Analysis Overhead information for Cran-Mar Company for October follows: What is the standard fixed factory overhead rate per machine-hour What is the denominator activity level that was used to establish the fixed overhead application rate Prepare a diagram such as the one in Exhibit 15.7. Panel 3, to calculate the following overhead variances for October: Total flexible-budget variance for factory overhead. Fixed overhead production volume variance. Total factory overhead cost variance. Performance Reporting: The Use of Standard Cost Variance Information You have been hired recently as the cost accountant for the consumer products division of Zobel ManufacturingExplanation / Answer
Part A
Total overhead = 30,000
Standard Variable overhead = Standard machine hours * Standard variable overhead rate
= 3600 * 3
= 10,800
Standard fixed overhead = Total overhead - Standard variable overhead
= 30,000 - 10,800
= 19,200
Therefore standard fixed factory overhead per machine hour = 5.33 (19,200/3600)
Part B
Denominator activity level that was utilised to established fixed overhead application rate is 3,600 hours.
Part C
B. Fixed overhead volume variance = Budgeted overhead - Absorbed overhead
= 7,125 - 19,188 (3600*5.33)
= 12,063 (Adverse)
C. Total factory overhead cost variance = Actual overhead - Absorbed overhead
= 30,000 - 17,640
= 12,360 (Adverse)
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