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Question 20 ICH.CO Adam Corporation manufactures computer tables and has the following budgeted indirect manufacturing cost information for next year. Support Departments Operating Departments TOTAL Maintenance Systems Machining Fabrication Budgeted Overhead S160.000 S 9000 52000 SW S 98 Support Work Furished From Maintenance 10% 50% 40% 100 From Systems 5% 49% 100 Adam uses the direct method to allocate support department costs to production departments, the total overhead (rounded to the nearest dollar) for the Machining Department to allocate to its products would be which of the following? S422,750 $445.000 $200,000 $442.051 You Answered Correctly! The direct method of cost allocation assumes service departments serve production only. There are no inter-service department services. Therefore, the total overhead for the Machining Department to allocate to its products is calculated as: Total overhead, Machining Dept. (Machining Dept overhead). (Machining Dept share of Maintenance overhead) + (Machining Dept. share of Systems overhead) Total overhead, Machining Dept. - $200,000+ $10.50 -0.50 +0.40) $360,000) 10.45 0.45 +0.50 $95.000) Total Overhead, Machining Dept. - $200,000 $200,000 $45,000 - $445.000 Question 1 Windell Company uses flexible budgets. At normal capacity of 8,000 units, budgeted manufacturing overhead is: $64,000 variable and S180,000 fixed. If Windell had actual overhead costs of S250,000 for 9.000 units produced, what is the variance between actual and budgeted costs? $2.000 unfavorable. $6.000 unfavorable $6,000 favorable $2,000 favorable This Answer is correct Correct. Flexible budgets are prepared after a period is over to show budested amounts for the actual level of activity achieved. Fixed costs are the same in a static budget and flexible budget as fixed costs do not change when activity changes Variable costs in a flexible budget will be different from variable costs in a static budget to the extent that actual activity level differs from the activity level used to prepare the static budget. The budgeted amount of variable cost is $8.00 per unit (S64,000 8.000), Ir there are 9,000 units produced, variable manufacturing overhead will be $72,000 (S8.00 9.000) in the flexible budget. The total flexible budget for 9,000 units is 252.000 (S180,000+ $72.000). Since actual spending is only $250,000, the $2.000 variance is favorable