Halt Company uses a standard cost system and applies manufacturing overhead to products on the basis of machine hours. The following information is available for the year just ended: Standard variable-overhead rate per machine hour: $2.50Standard fixed-overhead rate per machine hour: $5.00Planned activity during the period: 30,000 machine hoursActual production: 10,700 finished unitsProduction standard: Three machine hours per unitActual variable overhead: $86,200Actual total overhead: $225,500Actual machine hours worked: 35,100Required: A. Calculate the budgeted fixed overhead for the year.B. Did Halt spend more or less than anticipated for fixed overhead? How much?C. Was variable overhead under- or overapplied during the year? By how much?D. Was Halt efficient in its use of machine
hours? Briefly explain.E. Would the company's efficiency or inefficiency in the use of machine hours have any effect on Halt's overhead variances? If "yes," which one(s)?
What will be an ideal response?
A. Let X = budgeted fixed overhead
X ÷ 30,000 machine hours = $5.00 per hour
X = $150,000
B. Halt spent less than anticipated. Actual fixed overhead amounted to $139,300 ($225,500 - $86,200) when the budget was set at $150,000 (part "A"). The fixed-overhead budget variance is $10,700 favorable ($150,000 - $139,300).
C.
| Variable overhead is underapplied by $5,950: | ? |
| Actual variable overhead | $86,200 |
| Applied overhead: Standard hours allowed × Standard rate (10,700 × 3 × $2.50) | 80,250 |
| Underapplied variable overhead | $5,950 |
D. No. The company used 35,100 machine hours when it should have used 32,100 hours (10,700 × 3).
E. Yes. The actual and standard machine hours are used in the calculation of the variable-overhead efficiency variance.
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