Held Incorporated makes a single product--an electrical motor used in many long-haul trucks. The company has a standard cost system in which it applies overhead to this product based on the standard machine-hours allowed for the actual output of the period. Data concerning the most recent year appear below:?Budgeted (Planned) Overhead:???Budgeted variable manufacturing overhead$65,520??Budgeted fixed manufacturing overhead256,165??Total budgeted manufacturing overhead$321,685??????Budgeted production (a)35,000 units?Standard hours per unit (b)1.30 machine-hours?Budgeted hours (a) × (b)45,500 machine-hours?????Applying Overhead:???Actual production (a)36,000 units?Standard hours per unit (b)1.30 machine-hours?Standard hours allowed

Question

for the actual production   (a) × (b)46,800 machine-hours?????Actual Overhead and Hours:???Actual variable manufacturing overhead$93,528??Actual fixed manufacturing overhead240,165??Total actual manufacturing overhead$333,693??Actual hours43,300 machine-hours?Actual variable overhead rate$2.16 per machine-hourRequired:a. Compute the variable component of the company's predetermined overhead rate.b. Compute the fixed component of the company's predetermined overhead rate.c. Compute the company's predetermined overhead rate.d. Determine the variable overhead rate variance for the year.e. Determine the variable overhead efficiency variance for the year.f. Determine the fixed overhead budget variance for the year.g. Determine the fixed overhead volume variance for the year.h. Determine whether overhead was underapplied or overapplied for the year and by how much.

What will be an ideal response?

Answer 1

a. Variable component of the predetermined overhead rate = $65,520/45,500 machine-hours
= $1.44 per machine-hour

b. Fixed component of the predetermined overhead rate = $256,165/45,500 machine-hours
= $5.63 per machine-hour

c. Predetermined overhead rate = $321,685/45,500 machine-hours = $7.07 per machine-hour

d. Variable overhead rate variance = (AH × AR) - (AH × SR)
= ($93,528) - (43,300 machine-hours × $1.44 per machine-hour)
= ($93,528) - ($62,352)
= $31,176 U
or
Variable overhead rate variance = AH × (AR v SR)
= 43,300 machine-hours × ($2.16 per machine-hour - $1.44 per machine-hour)
= 43,300 machine-hours × ($0.72 per machine-hour)
= $31,176 U

e. Variable overhead efficiency variance = (AH - SH) × SR
= (43,300 machine-hours - 46,800 machine-hours) × $1.44 per machine-hour
= (-3,500 machine-hours) × $1.44 per machine-hour
= $5,040 F

f. Budget variance = Actual fixed overhead - Budgeted fixed overhead
= $240,165 - $256,165 = $16,000 F

g. Volume variance = Budgeted fixed overhead - Fixed overhead applied to work in process
= $256,165 - ($5.63 per machine-hour × 46,800 machine-hours)
= $256,165 - ($263,484)
= $7,319 F
or
Volume variance = Fixed component of the predetermined overhead rate x (Denominator hours - Standard hours allowed for the actual output)
= $5.63 per machine-hour × (45,500 machine-hours - 46,800 machine-hours)
= $5.63 per machine-hour × (45,500 machine-hours - 46,800 machine-hours)
= $5.63 per machine-hour × (-1,300 hours)
= $7,319 F

h. Predetermined overhead rate = $321,685/45,500 machine-hours = $7.07 per machine-hour