Best Around,Inc., is a manufacturer of vacuums and uses standard costing. Manufacturing overhead (both variable and fixed) is allocated to products on the basis of budgeted machine-hours. In 2014, budgeted fixed manufacturing overhead cost was $20,000,000. Budgeted variable manufacturing overhead was $7 per machine-hour. The denominator level was 1,000,000 machine-hours.

Requirments:

1.	Prepare a graph for fixed manufacturing overhead. The graph should display how Best Around, Inc.'s fixed manufacturing overhead costs will be depicted for the purposes of (a) planning and control and (b) inventory costing.
2.	Suppose that 800,000 machine-hours were allowed for actual output produced in 2014, but 850,000 actual machine-hours were used. Actual manufacturing overhead was $6,375,000, variable, and $19,925,000, fixed. Compute (a) the variable manufacturing overhead spending and efficiency variances and (b) the fixed manufacturing overhead spending and production-volume variances.
3.	What is the amount of the under- or overallocated variable manufacturing overhead and the under- or overallocated fixed manufacturing overhead? Why are the flexible-budget variance and the under- or overallocated overhead amount always the same for variable manufacturing overhead but rarely the same for fixed manufacturing overhead?
4.	Suppose the denominator level was 625,000 rather than 1,000,000 machine-hours. What variances in requirement 2 would be affected? Recompute them.

Requirement 2. Suppose that

800,000

machine-hours were allowed for actual output produced in

2014,

but

850,000

actual machine-hours were used. Actual manufacturing overhead was

$6,375,000,

variable, and

$19,925,000,

fixed. Compute (a) the variable manufacturing overhead spending and efficiency variances and (b) the fixed manufacturing overhead spending and production-volume variances.

(a) Begin by calculating the following amounts for the variable manufacturing overhead.

		Actual Input
	Actual Costs	x	Flexible	Allocated
	Incurred	Budgeted Rate	Budget	Overhead
Variable MOH

Now compute the variable manufacturing overhead spending and efficiency variances. (Label each variance as favorable (F) or unfavorable (U).)

Spending variance
Efficiency variance

(b) Now compute the following amounts for the fixed manufacturing overhead.

		Same Budgeted
		Lump Sum
	Actual Costs	Regardless of	Flexible	Allocated
	Incurred	Output Level	Budget	Overhead
Fixed MOH

Now compute the fixed manufacturing overhead spending and production-volume variances. (Label each variance as favorable (F) or unfavorable (U).)

Spending variance
Production-volume variance

Requirement 3. What is the amount of the under- or overallocated variable manufacturing overhead and the under- or overallocated fixed manufacturing overhead? Why are the flexible-budget variance and the under- or overallocated overhead amount always the same for variable manufacturing overhead but rarely the same for fixed manufacturing overhead?

The variable manufacturing overhead is

overallocatedoverallocated

underallocatedunderallocated

by

$nothing.

The fixed manufacturing overhead is

overallocatedoverallocated

underallocatedunderallocated

by

$nothing.

Why are the flexible-budget variance and the under- or overallocated overhead amount always the same for variable manufacturing overhead but rarely the same for fixed manufacturing overhead?

The flexible-budget variance and under- or overallocated overhead are always the same amount for variable manufacturing overhead, because the flexible-budget amount of variable manufacturing overhead and the allocated amount of

fixed manufacturing overhead coincide

fixed manufacturing overhead differ

variable manufacturing overhead coincide

variable manufacturing overhead differ

. In contrast, the budgeted and allocated amounts for fixed manufacturing overhead only coincide when the

actual

budgeted

input of the allocation base for the actual output level achieved

does not equal

exactly equals

the denominator level.

Requirement 4. Suppose the denominator level was

625,000

rather than

1,000,000

machine-hours. What variances in requirement 2 would be affected? Recompute them.

Begin by calculating the variable manufacturing overhead spending and efficiency variances. (Label each variance as favorable (F) or unfavorable (U).)

Spending variance
Efficiency variance

Now compute the fixed manufacturing overhead spending and production-volume variances. (Label each variance as favorable (F) or unfavorable (U).)

Spending variance
Production-volume variance