Question
Highland Shortbread, Ltd., of Aberdeen, Scotland, produces a single product and uses a standard cost system to help control costs. Manufacturing overhead is applied to
Highland Shortbread, Ltd., of Aberdeen, Scotland, produces a single product and uses a standard cost system to help control costs. Manufacturing overhead is applied to production on the basis of standard machine-hours. According to the companys flexible budget, the following overhead costs should be incurred at an activity level of 19,800 machine-hours (the denominator activity level chosen for the year): |
Variable manufacturing overhead cost | 37,620 | |
Fixed manufacturing overhead cost | 70,290 | |
Total manufacturing overhead cost | 107,910 | |
During the year, the following operating results were recorded: |
Actual machine-hours worked | 15,800 | |
Standard machine-hours allowed | 14,800 | |
Actual variable manufacturing overhead cost incurred | 45,000 | |
Actual fixed manufacturing overhead cost incurred | 74,690 |
At the end of the year, the companys Manufacturing Overhead account contained the following data: |
Manufacturing Overhead |
Actual costs | 119,690 | Applied costs | 80,660 |
39,030 | |||
Management would like to determine the cause of the 39,030 underapplied overhead. |
Required: | |
1. | Compute the predetermined overhead rate for the year. Break it down into variable and fixed cost elements.(Round your answers to 2 decimal places. Omit the "" sign in your response.) |
Predetermined Overhead Rate | |
Total rate | per MH |
Variable element | per MH |
Fixed element | per MH |
2. | Show how the 80,660 Applied costs figure in the Manufacturing Overhead account was computed.(Round your per MH value to 2 decimal places. Omit the "" sign in your response. ) |
standard MHs per MH = |
3. | Analyze the 39,030 underapplied overhead figure in terms of the variable overhead rate and efficiency variances and the fixed overhead budget and volume variances.(Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "" sign in your response.) |
Variable overhead: | ||
Efficiency variance | (Click to select)FNoneU | |
Rate variance | (Click to select)FNoneU | |
Fixed overhead: | ||
Volume variance | (Click to select)UFNone | |
Budget variance | (Click to select)FNoneU |
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