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Melton Products uses standard costing. It allocates manufacutring overhead (both variable and fixed) to products on...

Melton Products uses standard costing. It allocates manufacutring overhead (both variable and fixed) to products on the basis of standard direct manufacturing labor hours (DLH). Melton develops its manufacturing overbead rate from teh current annual budget. THe manufacturing overhead budget for 2018 is based on budgeted output of 720,000 units requiring 3,600,000 DLH. The company is able to schedule production uniformly throughout the year. A total of 66,000 output unuits requiring 315,000 DLH was produced during May 2018. Budgeted hours allowed per unit of output is 5 hours. Allocated total MOH for May is $396,000.

The actual costs, compared with the annual budget and 1/12 of the annual budget are as follows:

ANNUAL MANUFCATURING OVERHEAD BUDGET 2018

Total Amount Per output unit per DLH input unit Monthly MOH Budget May 2018 Actual MOH Costs for May 2018
Variable MOH
Indirect Labor $900,000 $1.25 $0.25 $75,000 $75,000
Supplies $1,224,000    $1.70 $0.34 $102,000 $111,000
Fixed MOH
Supervision $648,000 $0.90

$0.18

 $54,000 $51,000
Utilities $540,000 $0.75 $0.15 $45,000 $54,000
Depreciation $1,008,000 $1.40 $0.28 $84,000 $84,000
Total $4,320,000 $6.00 $1.20 $360,000 $375,000

Required:

Compute the following variances:

1. The variable manufacutring overhead spending variance

2. The variable manufacutring overhead efficiency variance

3. The fixed manufacturing overhead spending variance

4. The fixed manufacturing overhead volume variance

Please show your work.

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Homework Answers

Answer #1

Solution 1:

Standard rate of variable overhead = $0.34 + $0.25 = $0.59 per hour

Actual rate of variable overhead = ($75,000 + $111,000) / 315000 = $0.590476

Variable manufacturing overhead spending variance = (SR - AR) * AH

= ($0.59 - $0.590476) * 315000 = $150 U

Solution 2:

Variable overhead efficiency variance = (SH - AH) * SR = (330000 -315000) * $0.59 = $8,850 F

Solution 3:

Budgeted fixed manufacturing overhead = $360,000

Actual fixed manufacturing overhead = $375,000

Fixed manufacturing overhead spending variance = Budgeted fixed manufacturing overhead - Actual fixed manufacturing overhead

= $360,000 - $375,000 = $15,000 U

Solution 4:

Fixed overhead applied = SH * SR = 330000 * $1.20 = $396,000

Budgeted fixed overhead = $360,000

Fixed overhead volume variance = Fixed overhead applied - Budgeted fixed overhead = $396,000 - $360,000 = $36,000 F

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