Case study 4

Factory overhead cost and production data for a firm for a year were as follows:

Variable Cost

Fixed Cost

Machine Hours

$

$

Actual

90,000

205,000

20,000

Budget

95,000

190,000

19,000

Factory overhead is recovered from production using machine hours as the cost driver.

Task 4

a.Calculate the factory overhead recovery rate.

b.Determine the amount of over or under-applied overhead. Your answer must clearly state whether the calculated amount is over or under-applied.

c.Analyse over/under applied overhead into a spending variance and a capacity variance.