Silverstone\'s production budget for July called for making 39,200 units of a si

Question

Silverstone's production budget for July called for making 39,200 units of a single product. The firm's production standards allow one-half of a machine hour per unit produced. The fixed overhead budget for July was $34,888. Silverstone uses an absorption costing system. Actual activity and costs for July were: Units produced Fixed overhead costs incurred 36,378 S 37,300 Required: a. Calculate the predetermined fixed overhead application rate per machine hour that would be used in July. (Round your answer to 2 decimal places.) n rate er machine hour b. Calculate the number of machine hours that would be allowed for actual July production. c. Calculate the fixed overhead applied to work in process during July. (Do not round intermediate calculations.) d. Calculate the over- or underapplied fixed overhead for July. (Do not round intermediate calculations.) e. Calculate the fixed overhead budget and volume variances for July. (Do not round intermediate calculations. Indicato the offoct of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).) Fixed overhead budget variance xed overhead volume variances

Explanation / Answer

Ans. a. Total Budgeted fixed overhead = $34888

Budgeted Unit = 39200

Standared machine hour for each unit is = 1/2 machine hours

Total machine hours for 39200 units = 39200X1/2 = 19600 hours

Predetermined fixed overhead rate = 34888/19600 = $1.78 per machine hours

b. Actual no of units production in July = 36378

Machine hours allowed for July production = 36378X1/2 = 18189 machines hours

c. Fixed overhead applied for july production = 18189X1.78 = $32376

d. Actual fixed overhead = $37300

Applied fixed overhead = $32376

Underapplied (37300-32376) = $4924

e. Fixed overhead budget variance = total fixed overhead budgeted during the year-actual fixed overhead incurred

                                                         = 34888-37300 = 2412(UF)

Fixed overhead volume variance = budgeted fixed overhead-applied fixed overhead

                                                     = 34888-32376 = 2512(UF)

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