Presented here are the original overhead budget and the actual costs incurred du
ID: 2460722 • Letter: P
Question
Presented here are the original overhead budget and the actual costs incurred during April for Piccolo, Inc. Piccolo’s managers relate overhead to direct labor hours for planning, control, and product costing purposes. The original budget is based on budgeted production of 12,900 units in 4,300 standard direct labor hours. Actual production of 14,400 units required 4,900 actual direct labor hours. Original Budget Actual Costs Variable overhead $ 18,060 $ 20,660 Fixed overhead 33,110 35,200 Required: a. Calculate the flexed budget allowances for variable and fixed overhead for April. b. Calculate the direct labor efficiency variance for April expressed in terms of direct labor hours. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.) c. Calculate the predetermined overhead application rate for both variable and fixed overhead for April. (Round your answers to 2 decimal places.) d. Calculate the fixed and variable overhead applied to production during April if overhead is applied on the basis of standard hours allowed for actual production achieved. e. Calculate the fixed overhead budget and volume variances for April. (Round your intermediate calculations to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.) f. Calculate the over- or underapplied fixed overhead for April.
Explanation / Answer
Budget can be summarised as
12900 units
4300 hrs
Variable overhead = 18060
Std. Variable overhead per hr = 18060 / 4300,= 4.20
Std. Variable overhead per unit = 18060 / 12900, = 1.40
Fixed overhead = 33110
Std. Fixed overhead per hr = 33110 / 4300, = 7.70
Std. Fixed overhead per unit = 33110 / 12900, = 2.567
Now actual time taken is 4900 hours
actual units produced = 14400 units
a) Flexible budget can be summarised as ( Flexible budget is always based on level of output, i.e. in terms of units produced)
Variable overhead = 14400 units x Std. variable overhead per unit
= 14400 x 1.40, = 20160
Fixed overhead = 14400 units x Std. fixed overhead per unit
14400 x 2.567,= 36960
b) Now standard hour for standard production is
= 4300 hrs / 12900 units , = 1/3 hr per unit
also standard hr for actual production = 14400 units x 1/3 hr, = 4800 hrs
actual time taken = 4900 hrs
so, direct labour efficiency variable ( in terms of labour hour) = Std hours for actual production - actual hours
= 4800 - 4900,= 100 hours (U)
c) Variable overhead application rate = 4.20 per hour ( same as in a)
Fixed overhead application rate= 7.70 per hour ( same as in a)
d) std hours allowed for actual production = 4800 hours ( calculated in pt b)
Variable overhead applied = 4800 hours x 4.20, = 20160
fixed overhead applied = 4800 hours x 7.70,= 36960