Hargett 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$45,450??Budgeted fixed manufacturing overhead265,050??Total budgeted manufacturing overhead$310,500??????Budgeted production (a)30,000units?Standard hours per unit (b)1.50machine-hours?Budgeted hours (a) × (b)45,000machine-hours?????Applying Overhead:???Actual production (a)34,000units?Standard hours per unit (b)1.50machine-hours?Standard hours allowed for the

Question

actual production (a) × (b)51,000machine-hours?????Actual Overhead and Hours:???Actual variable manufacturing overhead$68,110??Actual fixed manufacturing overhead255,050??Total actual manufacturing overhead$323,160??Actual hours49,000machine-hoursRequired:a. Determine the variable overhead rate variance for the year.b. Determine the variable overhead efficiency variance for the year.c. Determine the fixed overhead budget variance for the year.d. Determine the fixed overhead volume variance for the year.e. 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 (SR) = $45,450/45,000 machine-hours
= $1.01 per machine-hour
Variable overhead rate variance = (AH × AR) ? (AH × SR)
= ($68,110) ? (49,000 machine-hours × $1.01 per machine-hour)
= ($68,110) ? ($49,490)
= $18,620 U

b. Labor efficiency variance = (AH ? SH) × SR
= (49,000 machine-hours ? 51,000 machine-hours) × $1.01 per machine-hour
= (-2,000 machine-hours) × $1.01 per machine-hour
= $2,020 F

c. Budget variance = Actual fixed overhead ? Budgeted fixed overhead
= $255,050 ? $265,050 = $10,000 F

d. Fixed component of the predetermined overhead rate = $265,050/45,000 machine-hours
= $5.89 per machine-hour
Volume variance = Budgeted fixed overhead ? Fixed overhead applied to work in process
= $265,050 ? ($5.89 per machine-hour × 51,000 machine-hours)
= $265,050 ? ($300,390)
= $35,340 F
or
Volume variance = Fixed component of the predetermined overhead rate x (Denominator hours ? Standard hours allowed for the actual output)
= $5.89 per machine-hour x (45,000 machine-hours ? 51,000 machine-hours)
= $5.89 per machine-hour x (45,000 machine-hours ? 51,000 machine-hours)
= $5.89 per machine-hour x (-6,000 hours)
= $35,340 F

e. Predetermined overhead rate = $310,500/45,000 machine-hours = $6.90 per machine-hour