Presented here are the original overhead budget and the actual costs incurred du
ID: 2493158 • 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 16,400 units in 4,100 standard direct labor hours. Actual production of 18,000 units required 5,000 actual direct labor hours. Required: a. Calculate the flexed budget allowances for variable and fixed overhead for April. b. Calculate the direct labor efficiency variance for April expresses in terms of direct labor hours. c. Calculate the predetermined overhead application rate for both variable and fixed overhead for April. 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.Explanation / Answer
Requirement a:
Calculation of Flexed Budget Allowances for Variable and Fixed Overhead for April:
Particulars
Flexed Budget
Variable Flexed Budget
24600 * 18000/16400
$27000
Fixed Flexed Budget
30750 * 18000/16400
$33750
Requirement b:
Calculation of Direct Labor Efficiency Variance:
Standard Hours = 4100 * 18000/ 16400 = 4500 hours
Actual Labor Hours = 5000 hours
Direct Labor Efficiency Variance = Standard Hours – Actual Hours
= 4500 – 5000
= 500 F
Requirement c:
Calculation of predetermined overhead application rate:
Particulars
Variable
Fixed
Predetermined Overhead application rate per hour
$5.4 (27000/5000)
$6.75 (33750/5000)
Requirement d:
Calculation of predetermined overhead application rate based on standard hours allowed:
Particulars
Variable
Fixed
Overhead Applied
$6(27000/4500)
$7.5 (33750/4500)
Requirement e:
Calculation of Fixed Overhead Budget and Volume Variance:
Particulars
Fixed Overhead Budget Variance
$1350 [32100 - 30750]
Unfavorable
Fixed Overhead Volume Variance
$3000 [(18000*30750/16400) – 30750]
Unfavorable
Calculation of Over/ (under) applied fixed overhead:
Applied Fixed Overhead = 18000*30750/16400 = $33750
Actual Fixed Overhead = $32100
Since Applied Overheads > Actual Overheads, we can say that the fixed overheads are over applied.
Over applied Fixed Overheads = Applied Overheads – Actual Overheads
= $33750 - $32100
= $1650
Particulars
Flexed Budget
Variable Flexed Budget
24600 * 18000/16400
$27000
Fixed Flexed Budget
30750 * 18000/16400
$33750