The information shown below is an extract from the previous period's budget and standard cost data for the machining department in a company manufacturing two products and which operates a full absorption standard costing system.

The department's overhead is applied to production by means of a standard machine hour absorption rate and this is calculated at the beginning of each period. The variable element of the previous period's absorption rate was £1.50 per standard machine hour and the department's total overheads for that period were budgeted to be £207,750. The budget assumes that one standard machine hour should be produced in one actual hour of machining time.
The actual results in the machining department for the previous period were:

Required:

(a) Calculate the following variances from standard/budgeted cost which occurred in the machining department during the previous period:
Fixed overhead volume variance.
Fixed overhead expenditure variance.
Variable overhead expenditure variance.

(b) Discuss in detail the possible reasons for the fixed overhead volume variance.

(c) Calculate the machining department's total flexed overhead budget for the actual level of production in the previous period and explain the difference between this total budgeted amount and the total production overhead absorbed by the department in the period.

Transcribed Image Text:

Budgeted production Standard machine hours allowed to process each product in the machining department Product X 6,500 units Product Y 4,200 units 4 hours 7 hours