Flick Company uses a standard cost system in which manufacturing overhead is applied to units of product on the basis of standard direct labor-hours. The company's total budgeted variable and fixed manufacturing overhead costs at the denominator level of activity are $20,000 for variable overhead and $30,000 for fixed manufacturing overhead. The predetermined overhead rate, including both fixed and variable components, is $2.50 per direct labor-hour. The standards call for two direct labor-hours per unit of output produced. Last year, the company produced 11,500 units of product and worked 22,000 direct labor-hours. Actual costs were $22,500 for variable overhead and $31,000 for fixed manufacturing overhead.Required:a. What is the denominator level of activity?b. What were the standard

Question

hours allowed for the output last year?c. What was the variable overhead rate variance?d. What was the variable overhead efficiency variance?e. What was the fixed manufacturing overhead budget variance?f. What was the fixed manufacturing overhead volume variance?

What will be an ideal response?

Answer 1

a. Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base
$2.50 per DLH = ($20,000 + $30,000) ÷ Estimated total amount of the allocation base
Estimated total amount of the allocation base = ($20,000 + $30,000) ÷ $2.50 per DLH
Estimated total amount of the allocation base = $50,000 ÷ $2.50 per DLH
Estimated total amount of the allocation base = 20,000 DLHs

b. Standard hours allowed for the actual output = Actual output × Standard hours per unit
= 11,500 units × 2 DLHs per unit
= 23,000 DLHs

c. Variable overhead rate variance = (AH × AR) - (AH × SR)
= $22,500 - (22,000 DLHs × $1.00 per DLH*)
= $22,500 - $22,000
= $500 U
*$20,000 ÷ 20,000 DLHs = $1.00 per DLH

d. Variable overhead efficiency variance = (AH - SH) × SR
= (22,000 DLHs - 23,000 DLHs*) × $1.00 DLH
= -1,000 DLHs × $1.00 DLH
= $1,000 F
* 11,500 units × 2 DLHs per unit = 23,000 DLHs

e. Budget variance = Actual fixed manufacturing overhead - Budgeted fixed manufacturing overhead
= $31,000 - $30,000
= $1,000 U

f. Volume variance = Fixed portion of predetermined overhead rate x
(Denominator hours - Standard hours allowed)
= $1.50 per DLH* × (20,000 DLHs - 23,000 DLHs)
= $1.50 per DLH × -3,000 DLHs
= $4,500 F
*$30,000 ÷ 20,000 DLHs = $1.50 per DLH