4. Pena Corporation allocates both variable and fixed overhead based on machine

Question

4. Pena Corporation allocates both variable and fixed overhead based on machine hours. The following variable and fixed overhead data pertain to Pena's current period results: Actual Production Machine-hours Variable overhead cost Fixed overhead cost Budget 100,000 units 10,000 hours 50,000 $ 25,000 110,000 units 9,800 hours $51,450 $26,000 a. Compute a three column variance analysis of Pena's variable manufacturing overhead for the results reported above. Include all appropriate variance descriptions Compute a three column variance analysis of Pena's fixed manufacturing overhead for the results reported above. Identify the under/over allocated fixed overhead amount and all appropriate variance descriptions. b.

Explanation / Answer

Actual units = 110000

Actual Hours, AH = 9800

Budgeted Units = 100000

Budgeted Hours = 10000

Standard Hours per unit = 10000 / 100000 = 0.1

Standard Hours allowed, SH = Standard Rate per hour * Actual Units = 0.1 * 110000 = 11000

Requirement a:

Budgeted Variable Overheads = $50000

Standar Rate per hour, SR p.h= $50000 / 11000 = $4.5454

Standard Rate per unit, SR p.u = $50000 / 100000 = $0.5

Actual Variable Overhead Cost = $51450

Actual Rate per hour, AR p.h = 51450 / 9800 = $5.25

Actual Rate per unit, AR p.u = 51450 / 110000 = $0.4677

Variance Analysis of Variable Manudfacturing Overhead:

Variable Overhead Cost Variance

= (SH*SR p.h.) - (AH*AR p.h)

= (11000 * 4.5454) - (9800 * 5.25)

= 50000 - 51450

= $1450 (U)

Variable Overhead Expenditure Variance:

= (AH * SR p.h) - (AH * AR p.h)

= (9800 * 4.5454) - (9800 * 5.25)

= 44545.4545 - 51450

= $6904.5454 (U)

Variable Overhead Efficiency Variance

= (SH * SR p.h) - (AH * SR p.h)

= (11000 * 4.5454) - (9800 * 4.5454)

= 50000 - 44545.45

= $5454.5454 (F)

Requirement b:

Budgeted Fixed Overhead = $25000

Standard Rate per hout = 25000 / 11000 = $2.2727

Actual Fixed Overhead = $26000

Actual Rate per hour = 26000 / 9800 = $2.65306

Fixed Overhead Cost Variance

= (SH * SR p.h) - (AH * AR p.h)

= (11000 * 2.2727) - (9800 *2.65306)

= 25000 - 26000

= -$1000

Fixed Overhead Expenditure Variance

= (BH * SR p.h) - (AH * AR p.h)

= (10000 * 2.2727) - (9800 * 2.65306)

= 22727 - 26000

= -$3273

Fixed Overhead Volume Variance

= (SH * SR p.h) - (BH * SR p.h)

= 25000 - 22727

= $2273

Fixed Overhead Capacity Variance

= (SH * AR p.h) - (BH * SR p.h)

= (11000 * 2.65306) - (10000 * 2.2727)

= 29184 - 22727

= $6457

Fixed Overhead Efficiency Variance

= (SH * SR p.h) - (SH * AR p.h)

= 25000 - 29184

= -$4184

Computation of Variance analysis of Variable manufacturing overheads: Particulars Expenditure Efficiency Cost Variable Overhead -6904.5454 5454.5454 -1450

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