Munoz Manufacturing Company produces a component part of a top secret military c

Question

Munoz Manufacturing Company produces a component part of a top secret military communication device. Standard production and cost data for the part, Product X, follow:

Munoz purchased and used 43,030 pounds of material at an average cost of $1.66 per pound. Labor usage amounted to 53,500 hours at an average of $8.59 per hour. Actual production amounted to 21,900 units. Actual fixed overhead costs amounted to $521,100. The company completed and sold all inventory for $1,900,000.

A. Calculate the predetermined overhead rate, assuming that Munoz uses the number of units as the allocation base.

B. Calculate the fixed cost spending and volume variances.

C.Determine the amount of gross margin Munoz would report on the year-end income statement.

Planned production 21,000 units Per unit direct materials 1.90 pounds @ $ 1.60 per pound Per unit direct labor 2.60 hours @ $ 8.50 per hour Total estimated fixed overhead costs $ 485,100

Explanation / Answer

Solution A Total Overhead          485,100 No of units            21,000 Overhead allocation rate =485100/21000 Overhead allocation rate            23.100 Solution B Actual Fixed overhead          521,100 Spending variance =485100-521100 Spending variance          (36,000) Adverse Volume variance Actual production            21,900 Volume variance =(Actual production-Budgeted production)*allocation rate =(21900-21000)*23.1            20,790 Solution C Gross Margin Revenue      1,900,000 Less Material-43030@1.66          (71,430) Less Labor-53500@8.59       (459,565) Fixed overhead       (521,100) Gross Margin          847,905

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