Norwall Company’s budgeted variable manufacturing overhead cost is $1.05 per machine-hour and its budgeted fixed manufacturing overhead is $27,094 per month.

Norwall Company’s budgeted variable manufacturing overhead cost is $1.05 per machine-hour and its budgeted fixed manufacturing overhead is $27,094 per month.

The following information is available for a recent month:

1. The denominator activity of 8,740 machine-hours is used to compute the predetermined overhead rate.
2. At a denominator activity of 8,740 machine-hours, the company should produce 3,800 units of product.
3. The company’s actual operating results were:

Number of units produced		4,220
Actual machine-hours		10,050
Actual variable manufacturing overhead cost	$	12,060
Actual fixed manufacturing overhead cost	$	26,400

Required:

1. Compute the predetermined overhead rate and break it down into variable and fixed cost elements. (Round your answers to 2 decimal places.)

2. Compute the standard hours allowed for the actual production.

3. Compute the variable overhead rate and efficiency variances and the fixed overhead budget and volume variances.

Explanation

1.

Predetermined overhead rate	=	$1.05 per MH × 8,740 MHs + $27,094
		8,740 MHs
	=	$36,271	= $4.15 per MH
		8,740 MHs

Variable portion of the predetermined overhead rate	=	$1.05 per MH × 8,740 MHs
		8,740 MHs
	=	$9,177	= $1.05 per MH
		8,740 MHs

Fixed portion of the predetermined overhead rate	=	$27,094
		8,740 MHs
	=	$3.10 per MH

2.

The standard hours per unit of product are:

8,740 hours ÷ 3,800 units = 2.30 hours per unit

Given this figure, the standard hours allowed for the actual production would be:

4,220 units × 2.30 hours per unit = 9,706 standard hours allowed.

3.

Variable overhead rate variance:

Variable overhead rate variance = (AH × AR) − (AH × SR)

($12,060) − (10,050 hours × $1.05 per hour)  = $1,507.50 U

Variable overhead efficiency variance:

Variable overhead efficiency variance = SR (AH − SH)

$1.05 per hour (10,050 hours − 9,706 hours) = $361.20 U

The fixed overhead variances are as follows:

Actual Fixed Overhead			Budgeted Fixed Overhead			Fixed Overhead Applied to Work in Process
$26,400			$27,094*			9,706 hours × $3.10 per hour = $30,088.60
	Budget variance, $694.00 F			Volume variance, $2,994.60 F

*As originally budgeted.

Thanks