You have just been hired as the controller of the Eastern Division of Global Manufacturing. Performance records for last year are incomplete, with only the following data available:?Variable overhead rate$3.00per direct labor-hour?Budgeted fixed manufacturing overhead$84,800??Total actual overhead cost$262,500??Fixed overhead budget variance$7,200unfavorable?Variable overhead efficiency variance$15,000unfavorable?Actual direct labor-hours worked55,000direct labor-hours?Denominator activity level53,000direct labor-hours?Standard hours per unit2direct labor-hoursRequired:Prepare a complete analysis of manufacturing overhead for the past year. Indicate actual, standard, and denominator activity levels; variable overhead rate and efficiency variances; and fixed

Question

manufacturing overhead budget and volume variances.

What will be an ideal response?

Answer 1

Budgeted fixed overhead rate = Fixed overhead ÷ Denominator quantity
= $84,800 ÷ 53,000 direct labor-hours
= $1.60 per direct labor-hour

Actual fixed manufacturing overhead = Budgeted fixed manufacturing overhead + Budget variance
= $84,800 + $7,200
= $92,000

Actual variable overhead = Total actual overhead - Actual fixed manufacturing overhead
= $262,500 - $92,000
= $170,500

Actual variable overhead rate = Actual variable overhead ÷ Actual hours
= $170,500 ÷ 55,000 direct labor-hours
= $3.10 per direct labor-hour

Rate variance = AH (AR - SR)
= 55,000 hours ($3.10 per hour - $3.00 per hour)
= $5,500 U

SH × SR = AH × SR - overhead efficiency variance
= 55,000 hours × $3.00 per hour - $15,000
= $150,000

Standard hours allowed = (SH × SR) ÷ SR
= $150,000 ÷ $3.00 per direct labor-hour
= 50,000 direct labor-hours

Actual units produced = Standard hours allowed ÷ Standard hours per unit
= 50,000 hours ÷ 2 hours per unit
= 25,000 units

Volume variance = Budgeted fixed - (SH × SR)
= $84,800 - (50,000 hours × $1.60 per hour)
= $84,800 - $80,000
= $4,800 U

Summary: