For a given department of the Serunity Company, estimated fixed overhead is $360
ID: 2595834 • Letter: F
Question
For a given department of the Serunity Company, estimated fixed overhead is $360,000 and variable overhead is $240,000 at a standard volume of 60,000 units. For November, $358,000 of fixed and $251,000 of variable overhead were incurred to produce 62,000 units. Which of the following statements is (are) true?
Overhead applied to production is $620,000.
Overhead volume variance is $14,000 (favorable).
Overhead budget variance is $3,000 (unfavorable).
All of the other answers are true.
A.Overhead applied to production is $620,000.
B.Overhead volume variance is $14,000 (favorable).
C.Overhead budget variance is $3,000 (unfavorable).
D.All of the other answers are true.
Explanation / Answer
Answer
A. Overhead applied to production is $620,000.
Explanation:
Overhead applied to production: (Given is for 60,000 units, so we have to calculate for estimates for 62,000 units)
Estimated Fixed overheads for 60,000 units are $ 360,000
So, estimated Fixed overheads for 62,000 units: (62,000 X 360,000) / 60,000 = $ 372,000
Estimated variable overheads for 60,000 units are $ 240,000
So, estimated Fixed overheads for 62,000 units: (62,000 X 240,000) / 60,000 = $ 248,000
Total overhead applied to production of 62,000 units = $ 372,000 + $ 248,000
=$ 620,000 (Answer)
Why not option B and C
Option B: Overhead volume variance
Fixed overhead volume variance= Actual Fixed overhead- Estimated fixed Overheads
= (Actual output X Fixed overhead absorption rate*) - (Standard output X Fixed overhead absorption rate)
= (62,000 X 6) – (60,000 X 6)
= $ 372,000 - $ 360,000
=$ 12,000 (Favourable)
Variable overhead volume variance= Actual Variable overhead- Estimated Variable Overheads
= (Actual output X Variable overhead absorption rate*) - (Standard output X Variable overhead absorption rate)
= (62,000 X 4) – (60,000 X 4)
= $ 248,000 - $ 240,000
=$ 8,000 (Favourable)
Total Overhead volume variance = $ 12,000 (Favourable) + $ 8,000 (Favourable)
= $ 20,000 (Favourable)
*Fixed overhead absorption rate = Standard fixed overheads / Standard units
= $ 248,000 / 62,000
=$ 4
Option C: Overhead budget variance (For 62000 units)
Overhead budget variance = Actual total Overheads- Estimated total Overheads
= $ 609,000- $ 620,000
= $ 11,000 (Unfavourable)
Estimated Overheads applied to actual production (62,000 units) = $ 620,000
Actual Overheads to actual production (62,000 units) = $ 358,000 + $ 251,000
= $ 609,000*
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