Chilczuk, S.A. of Gdansk, Poland, is a major producer of classic Polish sausage. The company uses a standard costing system to help control costs. Overhead is applied to production on the basis of labour-hours. According to the company?s flexible budget, the following manufacturing overhead costs should be incurred at an activity level of 70,000 labour-hours (the denominator activity level) (the currency in Poland is the zloty, denoted here by PZ):

Variable overhead costs........................PZ175,000Fixed overhead costs..................................420,000Total overhead cost................................PZ595,000

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

Activity:Actual labour-hours worked............................................60,000Standard labour-hours allowed for output...................64,000Cost:Actual variable overhead cost incurred...................PZ156,000Actual fixed overhead cost incurred........................PZ418,800

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 PZ30,800 underapplied overhead.

Required:

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

2. Show how the PZ544,000 applied figure in the manufacturing overhead account was computed.

3. Analyze the PZ30,800 underapplied overhead figure in terms of the variable overhead spending and efficiency variances and the fixed overhead budget and volume variances.

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

Transcribed Image Text:

Manufacturing Overhead 574,800 Applied 544,000 Actual 30,800