Problem 11-41 Overhead Calculations; Variance Interpretation (LO 11-5) Maxwell C
ID: 2589399 • Letter: P
Question
Problem 11-41 Overhead Calculations; Variance Interpretation (LO 11-5) Maxwell Company uses a standard cost accounting system and applies production overhead to products on the basis of machine hours. The following information is available for the year just ended: Standard variable-overhead rate per hour: $8.60 Standard fixed-overhead rate per hour: $13.80 Planned activity during the period: 33,000 machine hours Actual production: 19,200 finished units Machine-hour standard: Two completed units per machine hour Actual variable overhead: $278,050 Actual total overhead: $747,050 Actual machine hours worked: 33,500 Required: 1. Calculate the budgeted fixed overhead for the year. 2. Compute the variable-overhead spending variance. 3. Calculate the company's fixed-overhead volume variance. 4-a. Did Maxwell spend more or less than anticipated for fixed overhead? How much? 4-b. What was the difference in actual and anticipated overhead? 5. Was variable overhead underapplied or overapplied during the year? By how much? Complete this question by entering your answers in the tabs below. Required 1Required 2 Required 3 Required 4A Required 4B Required 5 Calculate the budgeted fixed overhead for the year. Budgeted fixed overheadExplanation / Answer
Solution:
1) Budgeted Fixed Overhead for the year = Standard fixed overhead rate per hour x Planned Activity
= $13.80 x 33,000 machine hours
= $455,400
2) Variable Overhead Spending Variance
Variable Overhead Spending/Rate Variance
Actual Hourly Variable Overhead Rate
(278,050 / 33,500 actual mhs)
8.30
Per MH
Standard Hourly Variable Overhead Rate (SV)
8.60
Per MH
Variance or Difference in Rate
0.30
Per MH
x Actual Machine Hours
33500
Machine Hours
Variable Overhead Rate/Spending Variance
$10,050
Favorable
3) Fixed Overhead Volume Variance
Fixed Overhead Volume Variance
Absorbed Fixed Overheads (A) (Actual MHs worked 33,500 x Standard fixed overhead rate per hour $13.80)
$462,300
Budgeted Fixed Overheads (B) (as calculated in part 1)
$455,400
Fixed Overhead Volume Variance (A-B)
$6,900
Favorable
4-a)
Actual Fixed Overhead = Total Overhead – Total Variable Overhead = 747,050 – 278,050 = $469,000
Budgeted Fixed Overheads = $455,400
The company spend more than anticipated by $13,600
4-b)
Standard Overhead
Actual Overhead
Difference
Variable overhead
$288,100
(33,500 MHs x $8.60 standard variable overhead rate per mh
278050
Fixed Overhead
$455,400
(As calculated in part 1)
$469,000
(as calculated in part 4a)
Total Overhead
$743,500
$747,050
$3,550
The difference between actual and anticipated overhead is $3,550
5)
Applied Variable Overhead = 33,500 Actual Machine hours x $$8.60 standard variable overhead rate per mh = $288,100
Actual Variable Overhead Incurred = $278,050
Applied Overheads are higher than actual overheads, it means the Variable Overheads are Over Applied.
Over Applied Variable Overhead = $288,100 - $278,050 = $10,050
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
Variable Overhead Spending/Rate Variance
Actual Hourly Variable Overhead Rate
(278,050 / 33,500 actual mhs)
8.30
Per MH
Standard Hourly Variable Overhead Rate (SV)
8.60
Per MH
Variance or Difference in Rate
0.30
Per MH
x Actual Machine Hours
33500
Machine Hours
Variable Overhead Rate/Spending Variance
$10,050
Favorable