Warrenfeltz Incorporated makes a single product--a cooling coil used in commercial refrigerators. The company has a standard cost system in which it applies overhead to this product based on the standard labor-hours allowed for the actual output of the period. Data concerning the most recent year appear below:?Budgeted (Planned) Overhead:???Budgeted variable manufacturing overhead$35,125??Budgeted fixed manufacturing overhead90,875??Total budgeted manufacturing overhead$126,000??????Budgeted production (a)25,000units?Standard hours per unit (b)0.50labor-hours?Budgeted hours (a) × (b)12,500labor-hours?????Applying Overhead:???Actual production (a)23,000units?Standard hours per unit (b)0.50labor-hours?Standard hours allowed for the actual

Question

production (a) × (b)11,500labor-hours?????Actual Overhead and Hours:???Actual variable manufacturing overhead$26,536??Actual fixed manufacturing overhead71,875??Total actual manufacturing overhead$98,411??Actual hours10,700labor-hoursRequired: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.

What will be an ideal response?

Answer 1

a. Variable component of the predetermined overhead rate = $35,125/12,500 labor-hours
= $2.81 per labor-hour

b. Fixed component of the predetermined overhead rate = $90,875/12,500 labor-hours
= $7.27 per labor-hour

c. Predetermined overhead rate = $126,000/12,500 labor-hours = $10.08 per labor-hour

d. Variable overhead rate variance = (AH × AR) ? (AH × SR)
= ($26,536) ? (10,700 labor-hours × $2.81 per labor-hour)
= ($26,536) ? ($30,067)
= $3,531 F

e. Variable overhead efficiency variance = (AH ? SH) × SR
= (10,700 labor-hours ? 11,500 labor-hours) × $2.81 per labor-hour
= (-800 labor-hours) × $2.81 per labor-hour
= $2,248 F

f. Budget variance = Actual fixed overhead ? Budgeted fixed overhead
= $71,875 ? $90,875 = $19,000 F

g. Volume variance = Budgeted fixed overhead ? Fixed overhead applied to work in process
= $90,875 ? ($7.27 per labor-hour × 11,500 labor-hours)
= $90,875 ? ($83,605)
= $7,270 U
or
Volume variance = Fixed component of the predetermined overhead rate x (Denominator hours ? Standard hours allowed for the actual output)
= $7.27 per labor-hour x (12,500 labor-hours ? 11,500 labor-hours)
= $7.27 per labor-hour x (12,500 labor-hours ? 11,500 labor-hours)
= $7.27 per labor-hour x (1,000 hours)
= $7,270 U