Applying Overhead; Overhead Variances Chilezuk, S.A., of Gdansk, Poland, is a major producer of classic Polish sausage. The company uses a standard cost system to help control costs. Manufacturing overhead is applied to production on the basis of standard direct labor-hours. According to the company’s flexible budget, the following manufacturing overhead costs should be incurred at an activity level of 35,000 labor-hours (the denominator activity level):

The currency in Poland is the zloty, which is denoted here by PZ.

During the most recent year, the following operating results were recorded:

At the end of the year, the company’s Manufacturing Overhead account contained the following data:

Management would like to determine the cause of the PZ 15,400 under applied overhead.

Required:

1.         Compute the predetermined overhead rate. Break the rate down into variable and fixed cost elements.

2.         Show how the PZ 272,000 Applied figure in the Manufacturing Overhead account was computed.

3.         Analyze the PZ 15,400 underapplied overhead figure in terms of the variable overhead rate and efficiency variances and the fixed overhead budget and volume variances.

4.         Explain the meaning of each variance that you computed in (3) above.

Transcribed Image Text:

Variable manufacturing overhead cost PZ 87,500 Fixed manufacturing overhead cost 210,000 Total manufacturing overhead cost PZ297,500