Ch.11 Exercises

Norwall Company’s Flexible budget manufacturing overhead (in condensed form) is given below :

The following information is available for the recent period:1. The dominator activity is 60,000 hours was chosen to compute the

predetermined overhead rate.2. At the 60,000 standard machine hours Level of Activity, the company

should produce 40,000 units of product.3. The company’s actual operating results were:

Number of units produced 42,000 Actual machine hours 64,000Actual Variable Overhead cost $185,000Actual Fixed Overhead cost $302,000

machine Hours Overhead cost Cost formula (per machine hours) 50,000 60,000 70,000

Variable Cost 150,000 180,000 210,000 Fixed Cost 300,000 300,000 300,000 Total Overhead cost

$3

450,000 480,000 510,000

Required:

Required:1. Compute the predetermined overhead rate and break it down into variable

and fixed cost elements.2. What are the standard hours allowed for the year’s actual output?3. Compute the variable overhead spending and efficiency variances and the

fixed overhead budget and volume variances.

Overhead from theflexible budget for the

denominator level of activityPOHR =

Denominator level of activity

480,000POHR =

60,000

Solution (1)

Overhead from theflexible budget for the

denominator level of activityPOHR =

Denominator level of activity

480,000Total rate =

60,000= 8 per MH

180,000Variable rate =

60,000= 3 per MH

300,000Fixed rate =

60,000= 5 per MH

Solution (2)

2.The standard hours per unit of product are:

60,000 hours ÷ 40,000 units = 1.5 hours per unit

64,000 hours 63,000 hours × × $3 per M hour $3 per M hour

Solution (3) 1- variable overhead spending and efficiency variances

Actual Flexible Budget Flexible Budget Variable for Variable for Variable Overhead Overhead at Overhead at Incurred Actual Hours Standard Hours

$185,600 $192,000 $189,000

Spending variance$6,400 Favorable

Efficiency variance$3,000 Unfavorable

$3,400 Favorable flexible budget total variance$3,400 Favorable flexible budget total variance

Actual Fixed Fixed Fixed Overhead Overhead Overhead Incurred Budget Applied

60,000 63,000 hours x × $5 per M hour $5 per M hour

Budget variance$2,400 unfavorable

$302,400 $300,000* $315,000

Volume variance$15,000 favorable

SH × FR

Solution (3) 2- Fixed overhead budget and volume variances

*As originally budgeted. This figure can be expressed as: 60,000 denominator hours × $5 per hour = $300,000.