Birkland Incorporated makes a single product--a critical part used in commercial airline seats. 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$137,670??Budgeted fixed manufacturing overhead278,460??Total budgeted manufacturing overhead$416,130??????Budgeted production (a)30,000units?Standard hours per unit (b)1.30labor-hours?Budgeted hours (a) × (b)39,000labor-hours?????Applying Overhead:???Actual production (a)26,000units?Standard hours per unit (b)1.30labor-hours?Standard hours allowed for the actual

Question

production (a) × (b)33,800labor-hours?????Actual Overhead and Hours:???Actual variable manufacturing overhead$87,185??Actual fixed manufacturing overhead261,460??Total actual manufacturing overhead$348,645??Actual hours32,900labor-hours?Actual variable overhead rate$2.65per labor-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.

What will be an ideal response?

Answer 1

a. Variable component of the predetermined overhead rate = $137,670/39,000 labor-hours
= $3.53 per labor-hour

b. Fixed component of the predetermined overhead rate = $278,460/39,000 labor-hours
= $7.14 per labor-hour

c. Predetermined overhead rate = $416,130/39,000 labor-hours = $10.67 per labor-hour

d. Variable overhead rate variance = (AH × AR) ? (AH × SR)
= ($87,185) ? (32,900 labor-hours × $3.53 per labor-hour)
= ($87,185) ? ($116,137)
= $28,952 F
or
Variable overhead rate variance = AH × (AR ? SR)
= 32,900 labor-hours × ($2.65 per labor-hour ? $3.53 per labor-hour)
= 32,900 labor-hours × (-$0.88 per labor-hour)
= $28,952 F

e. Variable overhead efficiency variance = (AH ? SH) × SR
= (32,900 labor-hours ? 33,800 labor-hours) × $3.53 per labor-hour
= (-900 labor-hours) × $3.53 per labor-hour
= $3,177 F

f. Budget variance = Actual fixed overhead ? Budgeted fixed overhead
= $261,460 ? $278,460 = $17,000 F

g. Volume variance = Budgeted fixed overhead ? Fixed overhead applied to work in process
= $278,460 ? ($7.14 per labor-hour × 33,800 labor-hours)
= $278,460 ? ($241,332)
= $37,128 U
or
Volume variance = Fixed component of the predetermined overhead rate x (Denominator hours ? Standard hours allowed for the actual output)
= $7.14 per labor-hour x (39,000 labor-hours ? 33,800 labor-hours)
= $7.14 per labor-hour x (39,000 labor-hours ? 33,800 labor-hours)
= $7.14 per labor-hour x (5,200 hours)
= $37,128 U