Question

1) Determining Budgeted Overhead The overhead application rate for a company is $12 per unit, made up of $7 per unit of fixed overhead and $5 per unit of variable over- head. Normal capacity is 10,000 units. In one month, there was a favorable flexible budget variance of $2,500. Actual overhead for the month was $110,000 and actual units produced were 15,125. Based on this information, determine the amount of the budgeted overhead for the actual level of production.

2) Calculating factory overhead: two variances Munoz Manufacturing Co. normally produces 12,000 units of product X each month. Each unit requires 2.5 hours of direct labor, and factory overhead is applied on a direct labor hour basis. Fixed costs and variable costs in factory overhead at the normal capacity are $3.00 and $2.00 per direct labor hour, respectively. Cost and production data for May follow:

Production for the month 11,000 UNITS

Direct labor hours used 22,500 HOURS

Factory overhead incurred for:

: Variable costs $33,000

Fixed costs $60,500

a. Calculate the flexible-budget variance.

b. Calculate the production-volume variance.

c. Was the total factory overhead under- or overapplied? By what amount?

Answer 1

1. Flexible budget variance = Actual overhead -budgeted overhead for the actual level of production

2500 = 110,000- budgeted overhead for the actual level of production

Budgeted overhead for the actual level of production = 110,000 +2500 = 112500

2. Flexible budget for actual production level:

Budgeted labor for actual production = 2.5 hours * 11000 units = 27500

Budgeted factory overheads = Variable cost + Fixed overhead = (27500 * 2) + (12000*2.5* 3) = 145000

a. Flexible-budget variance = Actual overheads - Budgeted factory overhead for actual production = (33000+60500) - 145000 = 51500 F

b.Production volume variance = Flexible budget for actual production level - Factory overhead applied

= 145000 - ( 11000 *2.5* 5)

= 7500 UF

c. Underapplied by 7500