Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Nova Corporation produces a single product and uses a standard cost system to help control costs. Overhead is applied to production on the basis of

Nova Corporation produces a single product and uses a standard cost system to help control costs. Overhead is applied to production on the basis of machine hours. According to the company's flexible budget, the following overhead costs should be incurred at an activity level of 18,000 machine hours (the denominator activity level chosen for the current year):

Variable Overhead Costs$45,000

Fixed Overhead Costs$108,000

Total Overhead Costs$153,000

During the current year, the following operating results were recorded:

Actual Machine Hours Worked15,000

Standard Machine Hours Allowed16,000

Actual Variable Overhead Cost Incurred$38,000

Actual Fixed Overhead Cost Incurred$107,100

At the end of the year, the company's Manufacturing Overhead account showed total debits for actual overhead costs of $145,100 and total credits for overhead actually applied of $136,000. The difference ($9,100) represents underapplied overhead, the cause of which management would like to know.

Required:

a) Compute the predetermined overhead rate that would have been used during the year, showing separately the variable and fixed components of the rate.

b) Show how the $136,000 of "Applied Costs" was computed.

c) Analyze the $9,100 underapplied overhead figure in terms of the variable overhead spending and efficiency variances and the fixed overhead budget and volume variances.

d) We need a journal entry to record the variable overhead costs incurred and applied, including the results of the variance analysis.

e) We need a journal entry to record the fixed overhead costs incurred and applied, including the results of the variance analysis.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Cost-Benefit Analysis For Public Sector Decision Makers

Authors: Diana Fuguitt

1st Edition

1567202225, 9781567202229

More Books

Students also viewed these Accounting questions

Question

S th O A S th O A

Answered: 1 week ago

Question

An improvement in the exchange of information in negotiations.

Answered: 1 week ago