Question
Company uses standard costing. The company prepared its static budget for 2018 at 2,500,000 machine hours for the year. Total budgeted overhead cost is $33,500,000.
Company uses standard costing. The company prepared its static budget for 2018 at 2,500,000 machine hours for the year. Total budgeted overhead cost is $33,500,000. The variable overhead rate is $11 per machine hour ($22 per unit). Actual result for 2018 as follow:
Machine-hours | 2,400,000 | hours |
Output | 1,230,000 | units |
Variable overhead | $27,600,000 | |
Fixed overhead rate variance | $1,350,000 | U |
1. | Calculate for the fixed overhead: | |
a. | Budgeted amount. | |
b. | Budgeted cost per machine-hour. | |
c. | Actual cost. | |
d. | Production-volume variance. | |
2. | Calculate the variable overhead rate variance and the variable overhead efficiency variance. | |
3. | Angela AustenAusten, the controller, prepares the variance analysis. It is common knowledge in the company that she and RonaldBerknerBerkner, the production manager, are not on the best of terms. In a recent executive committee meeting,BerknerBerkner had complained about the lack of usefulness of the accounting reports he receives. To get back at him,AustenAusten manipulated the actual fixed overhead amount by assigning a greater-than-normal share of allocated costs to the production area. In addition, she decided to depreciate all of the newly acquired production equipment using the double-declining-balance method rather than the straight-line method, contrary to company practice. As a result, there was a sizable unfavourable fixed overhead rate variance. She boasted to one of her confidants, "I am just returning the favour." DiscussAustenAusten's actions and their ramifications. |
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