Appendix 8A Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System True / False Questions A company has a standard cost system in which fixed and variable manufacturing overhead costs are applied to products on the basis of direct labor-hours A fixed manufacturing overhead volume variance will NOT necessarily occur in a month in which production volume differs from sales volume True False The fixed manufacturing overhead volume variance is more meaningful than the budget variance for cost control purposes True False In a standard costing system, if the actual fixed manufacturing overhead cost exceeds the budgeted fixed manufacturing overhead cost for the period, then fixed manufacturing overhead cost would be overapplied for the period True False If all four of Argo Corporation's overhead variances are favorable, Argo's overhead will be underapplied True False A company has a standard cost system in which fixed and variable manufacturing overhead costs are applied to products on the basis of direct labor-hours The company's choice of the denominator level of activity affects the fixed manufacturing overhead budget variance True False App8A-1 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education The higher the denominator activity level used to compute the predetermined overhead rate, the lower the predetermined overhead rate True False An unfavorable volume variance means that a firm operated at an activity level that was below the activity level planned for the period True False A company has a standard cost system in which fixed and variable manufacturing overhead costs are applied to products on the basis of direct labor-hours A fixed manufacturing overhead volume variance will NOT necessarily occur in a month in which the fixed manufacturing overhead applied to units of product on the basis of standard hours allowed differs from the budgeted fixed manufacturing overhead True False A fixed manufacturing overhead volume variance occurs as the result of a difference between the denominator level of activity (in hours) and the standard hours allowed for the actual output of the period True False 10 A company has a standard cost system in which fixed and variable manufacturing overhead costs are applied to products on the basis of direct labor-hours A fixed manufacturing overhead volume variance will NOT necessarily occur in a month in which there is a fixed manufacturing overhead budget variance True False 11 In a standard costing system where the denominator activity for the predetermined overhead rate is labor-hours, overhead costs are applied to work in process on the basis of the standard labor-hours allowed for the actual output True False 12 A company has a standard cost system in which fixed and variable manufacturing overhead costs are applied to products on the basis of direct labor-hours The company's choice of the denominator level of activity has no effect on the variable portion of the predetermined overhead rate True False 13 A favorable volume variance means that the company operated at an activity level greater than that planned for the period True False App8A-2 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 14 A company has a standard cost system in which fixed and variable manufacturing overhead costs are applied to products on the basis of direct labor-hours The company's choice of the denominator level of activity affects the fixed manufacturing overhead volume variance True False Multiple Choice Questions 15 Sulema, Inc repairs and refinishes antique furniture Manufacturing overhead at Sulema is applied to production on the basis of standard direct labor-hours Which overhead variance(s) at Sulema would be unfavorably affected if the cost of solvents used to strip the old paint from the furniture unexpectedly doubles in price? A variable overhead rate variance B variable overhead efficiency variance C fixed manufacturing overhead budget variance D fixed manufacturing overhead volume variance 16 When computing standard cost variances, the difference between actual and standard price multiplied by actual quantity yields a(n): A combined price and quantity variance B efficiency variance C price or rate variance D quantity variance App8A-3 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 17 The fixed manufacturing overhead budget variance is: A the difference between budgeted fixed manufacturing overhead cost and actual fixed manufacturing overhead cost B the difference between actual fixed manufacturing overhead cost and applied fixed manufacturing overhead cost C the difference between budgeted fixed manufacturing overhead cost and applied fixed manufacturing overhead cost D the difference between fixed overhead at the planned level of activity and the flexible budget for actual activity 18 A volume variance is computed for: A both variable and fixed manufacturing overhead B variable manufacturing overhead only C fixed manufacturing overhead only D direct labor costs as well as overhead costs 19 Which of the following variances is generally the least significant from the standpoint of cost control? A Materials price variance B Labor efficiency variance C Fixed manufacturing overhead volume variance D Variable overhead rate variance App8A-4 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 20 Traveller Corporation sells one product and uses a standard cost system Last year the overhead volume variance was zero Which of the following is correct? A Actual variable manufacturing overhead cost was equal to standard variable manufacturing overhead cost B Total applied overhead was equal to total actual overhead C The denominator activity was equal to actual activity D The budgeted fixed costs were equal to the applied fixed costs 21 The Santos Corporation made an error when selecting a denominator level of activity and chose a much lower level than was realistic This error would most likely result in a large: A favorable variable overhead efficiency variance B favorable fixed manufacturing overhead budget variance C favorable fixed manufacturing overhead volume variance D unfavorable fixed manufacturing overhead budget variance 22 In a standard cost system, overhead is applied to production on the basis of: A the denominator hours chosen for the period B the actual hours required to complete the actual output of the period C the standard hours allowed to complete the actual output of the period D the actual cost of fixed overhead during the period App8A-5 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 23 Dori Castings is a job order shop that uses a standard cost system Manufacturing overhead costs are applied on the basis of standard direct labor-hours A volume variance will exist for Dori in a month where: A production volume differs from sales volume B actual direct labor-hours differ from standard hours allowed C there is a budget variance in fixed manufacturing overhead costs D the fixed manufacturing overhead applied to units of product on the basis of standard hours allowed differs from the budgeted fixed manufacturing overhead 24 Alex Corporation has a large underapplied overhead balance in the manufacturing overhead account This could be explained by: A an unfavorable volume variance, assuming all other variances are zero B a favorable volume variance, assuming all other variances are zero C standard hours allowed for the period's output being greater than denominator hours for the period D favorable total variance for overhead 25 Coblentz Fabrication Corporation has a standard cost system in which it applies manufacturing overhead to products on the basis of standard machine-hours (MHs) at $6.20 per MH The company had budgeted its fixed manufacturing overhead cost at $40,000 for the month During the month, the actual total variable manufacturing overhead was $48,970 and the actual total fixed manufacturing overhead was $43,000 The actual level of activity for the period was 8,300 MHs What was the total of the variable overhead rate and fixed manufacturing overhead budget variances for the month? A $2,490 Favorable B $510 Favorable C $510 Unfavorable D $2,490 Unfavorable App8A-6 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 26 Omary Corporation has a standard cost system in which it applies manufacturing overhead to products on the basis of standard machine-hours (MHs) The company has provided the following data for the most recent month: Budgeted level of activity 3,900 MHs Actual level of activity 4,100 MHs Standard variable manufacturing overhead rate $7.60 Budgeted fixed manufacturing overhead cost $50,00 Actual total variable manufacturing overhead $31,98 per MH Actual total fixed manufacturing $54,00 overhead What was the total of the variable overhead rate and fixed manufacturing overhead budget variances for the month? A $1,520 Unfavorable B $3,180 Favorable C $4,820 Unfavorable D $6,340 Unfavorable App8A-7 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 27 Dexter Corporation uses a standard cost system and applies manufacturing overhead cost to units of product on the basis of standard direct labor-hours (DLHs) Information on Dexter Corporation's manufacturing overhead costs for last period is given below: Actual hours worked 40,000 DLHs Standard hours allowed for actual production 38,000 DLHs Denominator hours used in computing the predetermined overhead rate 35,000 DLHs Predetermined overhead rate $4 Actual overhead cost incurred $150,00 per DLH Given these data, the underapplied or overapplied overhead cost for the period would be: A $10,000 overapplied B $2,000 overapplied C $10,000 underapplied D $8,000 underapplied App8A-8 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 28 Steinhagen Corporation applies manufacturing overhead to products on the basis of standard machine-hours Budgeted and actual overhead costs for the most recent month appear below: Original Budget Actual Costs $5,460 $6,570 3,640 4,410 Supervision 9,100 9,450 Utilities 5,980 5,850 Variable overhead costs: Supplies Indirect labor Fixed overhead costs: Factory depreciation Total overhead cost 22,100 22,520 $46,280 $48,800 The company based its original budget on 2,600 machine-hours The company actually worked 2,790 machine-hours during the month The standard hours allowed for the actual output of the month totaled 2,960 machine-hours What was the overall fixed manufacturing overhead volume variance for the month? A $5,148 Favorable B $5,148 Unfavorable C $2,717 Favorable D $2,717 Unfavorable App8A-9 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 29 Semaan Corporation applies manufacturing overhead to products on the basis of standard machine-hours Budgeted and actual overhead costs for the month appear below: Original Budget Actual Costs $11,340 $12,850 15,120 17,080 14,900 14,640 5,800 6,010 9,700 9,410 $56,860 $59,990 Variable overhead costs: Supplies Indirect labor Fixed overhead costs: Supervision Utilities Factory depreciation Total overhead cost The company based its original budget on 2,700 machine-hours The company actually worked 2,960 machine-hours during the month The standard hours allowed for the actual output of the month totaled 3,030 machine-hours What was the overall fixed manufacturing overhead budget variance for the month? A $3,130 Unfavorable B $340 Unfavorable C $340 Favorable D $3,130 Favorable App8A-10 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 103 Nova Corporation produces a single product and uses a standard cost system to help control costs Overhead is applied to production on the basis of standard machine-hours According to the company's flexible budget, the following overhead costs should be incurred at an activity level of 18,000 machine-hours (the denominator activity level chosen for the current year): Variable overhead costs $45,000 Fixed overhead costs 108,000 Total overhead costs $153,000 During the current year, the following operating results were recorded: Actual machine-hours worked 15,000 Standard machine-hours allowed 16,000 Actual variable overhead cost incurred $38,000 Actual fixed manufacturing overhead cost incurred $107,10 At the end of the year, the company's Manufacturing Overhead account showed total debits for actual overhead costs of $145,100 and total credits of $136,000 for overhead applied The difference ($9,100) represents under-applied overhead, the cause of which management would like to know Required: a Compute the predetermined overhead rate that would have been used during the year, showing separately the variable and fixed components of the rate b Show how the $136,000 of overhead actually applied was computed c Analyze the $9,100 under-applied overhead figure in terms of the variable overhead rate and efficiency variances and the fixed manufacturing overhead budget and volume variances a Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base App8A-177 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Variab le Fixed Tota l Estimated $45,00 $108,00 manufacturi 0 ng overhead cost (a) Estimated 18,000 total amount of the allocation base (b) Predetermin ed overhead rate (a) ÷ (b) $2.50 18,000 $6.00 $8.5 b Overhead applied = Predetermined overhead rate × Standard hours allowed = $8.50 per hour × 16,000 machine-hours = $136,000 c Variable overhead rate variance = (AH × AR) - (AH × SR) = $38,000 - (15,000 machine-hours × $2.50 per machine-hour) = $38,000 - $37,500 = $500 U Variable overhead efficiency variance = (AH - SH) × SR = (15,000 machine-hours - 16,000 machine-hours) × $2.50 per machine-hour = -1,000 machine-hours × $2.50 per machine-hour = $2,500 F Fixed overhead variances: Budget variance = Actual fixed overhead - Budgeted fixed overhead = $107,100 - $108,000 = $900 F Volume variance = Budgeted fixed overhead - Fixed overhead applied to work in process = $108,000 - (16,000 machine-hours × $6.00 per machine-hour) = $108,000 - $96,000 = $12,000 U Variable overhead rate variance $500 U App8A-178 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Variable overhead efficiency variance 2,500 F Fixed overhead budget variance 900 F Fixed overhead volume variance 12,000 U Underapplied overhead $9,100 U AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Apply Learning Objective: 08-03 Prepare a flexible budget with more than one cost driver Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances Level of Difficulty: Hard Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System Topic Area: Flexible Budgets with Multiple Cost Drivers App8A-179 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education App8A-180 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 104 Littleton Manufacturing uses a standard cost system in which manufacturing overhead is applied to units of product on the basis of standard machine-hours At standard, each unit of product requires one machine-hour to complete The standard variable overhead is $1.80 per machine-hour and $432,000 per year The denominator level of activity is 120,000 machine-hours, or 120,000 units Actual data for the year were as follows: Actual variable overhead cost $178,50 Actual fixed manufacturing overhead cost $248,00 Actual machine-hours 105,000 Units produced 100,000 Required: a What are the predetermined variable and fixed manufacturing overhead rates? b Compute the variable overhead rate and efficiency variances c Compute the fixed manufacturing overhead budget and volume variances a Standard variable overhead rate = $216,000 ÷ 120,000 MHs = $1.80 per MH Standard fixed manufacturing overhead rate = $240,000 ÷ 120,000 MHs = $2.00 per MH b Variable overhead variances: Variable overhead rate variance = (AH × AR) - (AH × SR) = $178,500 - (105,000 MHs × $1.80 per MH) = $178,500 - $189,000 = $10,500 F Variable overhead efficiency variance = (AH - SH) × SR = (105,000 MHs - 100,000 MHs*) × $1.80 per MH = 5,000 MHs × $1.80 per MH = $9,000 U *100,000 units × MH per unit = 100,000 MHs App8A-181 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education c Fixed overhead variances: Budget variance = Actual fixed manufacturing overhead - Budgeted fixed manufacturing overhead = $248,000 - ($2.00 per MH × 120,000 MHs) = $248,000 - $240,000 = $8,000 U Volume variance = Fixed component of the predetermined overhead rate × (Denominator hours - Standard hours allowed for the actual output) = $2.00 per MH × (120,000 MHs - 100,000 MHs) = $2.00 per MH × 20,000 MHs = $40,000 U AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Apply Learning Objective: 08-03 Prepare a flexible budget with more than one cost driver Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances Level of Difficulty: Medium Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System Topic Area: Flexible Budgets with Multiple Cost Drivers App8A-182 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education App8A-183 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 105 You have just been hired as the new executive assistant to the manager of the Eastern Division of Global Manufacturing You have been given the following incomplete records concerning manufacturing overhead for last year: Variable overhead rate $3.50 per DLH Budgeted fixed $70,000 manufacturing overhead Total actual overhead cost $259,40 Fixed overhead budget variance $10,000 Unfavorab le Variable overhead efficiency variance $14,000 Unfavorab le Actual direct labor-hours worked 52,000 DLHs Denominator activity level 50,000 DLHs Standard hours per unit DLHs The company uses a standard cost system in which manufacturing overhead costs are applied to products on the basis of standard direct labor-hours (DLHs) Required: a Compute the variable overhead rate variance and indicate whether it was favorable or unfavorable b Compute the fixed overhead volume variance and indicate whether it was favorable or unfavorable a Budget variance = Actual fixed overhead - Budgeted fixed overhead $10,000 U = Actual fixed overhead - $70,000 $10,000 = Actual fixed overhead - $70,000 Actual fixed overhead = $70,000 + $10,000 Actual fixed overhead = $80,000 Actual variable overhead = Total actual overhead - Actual fixed manufacturing overhead App8A-184 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education = $259,400 - $80,000 = $179,400 Variable overhead rate variance = (AH × AR) - (AH × SR) = $179,400 - (52,000 DLHs × $3.50 per DLH) = $179,400 - $182,000 = $2,600 F b Budgeted fixed overhead rate = Fixed overhead ÷ Denominator activity level = $70,000 ÷ 50,000 DLHs = $1.40 per DLH Variable overhead efficiency variance = (AH - SH) × SR $14,000 U = (52,000 DLHs - SH) × $3.50 per DLH $14,000 = (52,000 DLHs - SH) × $3.50 per DLH 52,000 DLHs - SH = $14,000 ÷ $3.50 per DLH 52,000 DLHs - SH = 4,000 DLHs SH = 52,000 DLHs - 4,000 DLHs = 48,000 DLHs Volume variance = Budgeted fixed overhead - Fixed overhead applied to work in process = $70,000 - (48,000 DLHs × $1.40 per DLH) = $70,000 - $67,200 = $2,800 U AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Apply Learning Objective: 08-03 Prepare a flexible budget with more than one cost driver Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances Level of Difficulty: Hard Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System Topic Area: Flexible Budgets with Multiple Cost Drivers App8A-185 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 106 Aslett Corporation's manufacturing overhead includes $3.80 per machine-hour for supplies; $8.80 per machine-hour for indirect labor; $214,132 per period for salaries; and $546,720 per period for depreciation Required: Determine the predetermined overhead rate if the denominator level of activity is 6,800 machine-hours Show your work! Estimated total manufacturing overhead cost = [($3.80 per MH + $8.80 per MH) × 6,800 MHs] + ($214,132 + $546,720) = $85,680 + $760,852 = $846,532 Predetermined overhead rate = Estimated total manufacturing overhead cost/Estimated total amount of the allocation base = $846,532 ÷ 6,800 machinehours = $124.49 per machine-hour AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Apply Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances Level of Difficulty: Easy Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System App8A-186 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 107 Pierce Corporation uses a standard cost system in which it applies manufacturing overhead to its product on the basis of standard direct labor-hours (DLHs) Below is the standard cost card for the product: Direct materials, 4.5 feet × $3.80 per foot $17.1 Direct labor, 3.0 DLHs × $9.50 per DLH 28.50 Variable overhead, 3.0 DLHs × $2.00 per DLH 6.00 Fixed overhead, 3.0 DLHs × $8.00 per DLH 24.0 $75.6 Last year, the company produced 6,000 units of product using 17,000 direct laborhours The actual total fixed manufacturing overhead cost for the year was $140,000 and the volume variance was $12,000, favorable Required: a Determine the budgeted amount of total fixed manufacturing overhead cost b Determine the denominator activity figure that the company used in computing predetermined overhead rates a Fixed overhead cost applied to work in process = $24 per unit × 6,000 units = $144,000 Volume variance = Budgeted fixed overhead - Fixed overhead applied to work in process $12,000 F = Budgeted fixed overhead - $144,000 - $12,000 = Budgeted fixed overhead - $144,000 Budgeted fixed overhead = $144,000 - $12,000 = $132,000 b Volume variance = Fixed component of the predetermined overhead rate × (Denominator hours - Standard hours allowed for the actual output) $12,000 F = $8 per DLH × [Denominator hours - (3 DLHs per unit × 6,000 units)] -$12,000 = $8 per DLH × [Denominator hours - 18,000 DLHs] [Denominator hours - 18,000 DLHs] = -$12,000 ÷ $8 per DLH [Denominator hours - 18,000 DLHs] = -1,500 DLHs Denominator hours = 18,000 DLHs - 1,500 DLHs = 16,500 DLHs AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Measurement App8A-187 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Blooms: Apply Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances Level of Difficulty: Hard Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System 108 Faessler Corporation applies overhead to products based on machine-hours The denominator level of activity is 6,500 machine-hours The budgeted fixed manufacturing overhead costs are $242,450 In July, the actual fixed manufacturing overhead costs were $242,490 and the standard machine-hours allowed for the actual output were 7,000 machine-hours Required: a Compute the budget variance for July Show your work! b Compute the volume variance for July Show your work! a Budget variance = Actual fixed manufacturing overhead cost - Budgeted fixed manufacturing overhead cost = $242,490 - $242,450 = $40 U b Fixed component of the predetermined overhead rate = $242,450 ÷ 6,500 machine-hours = $37.30 per machine-hour Volume variance = Fixed component of the predetermined overhead rate × (Denominator hours - Standard hours allowed) = $37.30 per machine-hour × (6,500 machine-hours - 7,000 machine-hours) = $37.30 per machine-hour × (-500 machine-hours) = $18,650 F AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Apply Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances Level of Difficulty: Easy Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System App8A-188 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 109 Dixie Corporation has provided the following data for June Denominator level of activity Budgeted fixed manufacturing overhead costs Fixed component of the predetermined overhead rate 2,000 machine-hours $39,200 $19.60 per machine-hour Actual level of activity 2,300 machine-hours Standard machine-hours allowed for the actual output 2,200 machine-hours Actual fixed manufacturing overhead costs $40,550 Required: a Compute the budget variance for June Show your work! b Compute the volume variance for June Show your work! a Budget variance = Actual fixed manufacturing overhead cost − Budgeted fixed manufacturing overhead cost = $40,550 − $39,200 = $1,350 U b Volume variance = Fixed component of the predetermined overhead rate × (Denominator hours − Standard hours allowed) = $19.60 per machine-hour × (2,000 machine-hours − 2,200 machine-hours) = $19.60 per machine-hour × (−200 machine-hours) = $3,920 F AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Apply Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances Level of Difficulty: Easy Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System App8A-189 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 110 Stenquist Corporation has provided the following data for January Denominator level of activity Budgeted fixed manufacturing overhead costs Standard machine-hours allowed for the actual output Actual fixed manufacturing overhead costs 7,900 machin e-hours $95,59 8,300 machin e-hours $98,71 Required: a Compute the budget variance for January Show your work! b Compute the volume variance for January Show your work! a Budget variance = Actual fixed manufacturing overhead cost − Budgeted fixed manufacturing overhead cost = $98,710 − $95,590 = $3,120 U b Fixed component of the predetermined overhead rate = $95,590 ÷ 7,900 machine-hours = $12.10 per machine-hour Volume variance = Fixed component of the predetermined overhead rate × (Denominator hours − Standard hours allowed) = $12.10 per machine-hour × (7,900 machine-hours − 8,300 machine-hours) = $12.10 per machine-hour × (−400 machine-hours) = $4,840 F AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Apply Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances Level of Difficulty: Easy Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System App8A-190 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 111 Kingdon Corporation's manufacturing overhead includes $7.10 per machine-hour for variable manufacturing overhead and $207,000 per period for fixed manufacturing overhead Required: Determine the predetermined overhead rate for the denominator level of activity of 4,600 machine-hours Predetermined overhead rate = Estimated total manufacturing overhead/Denominator level of activity = [($7.10 per machine-hour × 8,100 machine-hours) + $207,000] ÷ 4,600 machine-hours = $239,660 ÷ 4,600 machine-hours = $52.10 per machine-hour AACSB: Analytical Thinking sssAICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Apply Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances Level of Difficulty: Easy Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System App8A-191 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education ... overhead cost was equal to standard variable manufacturing overhead cost B Total applied overhead was equal to total actual overhead C The denominator activity was equal to actual activity D The... applied to production on the basis of: A the denominator hours chosen for the period B the actual hours required to complete the actual output of the period C the standard hours allowed to complete... following total budgeted costs at a denominator activity level of 20,000 machine-hours: Variable overhead costs (total): Maintenance $16,000 Utilities $10,000 Fixed overhead costs (total): Supervision