Problem 10A-9 (Algo) Applying Overhead; Overhead Variances [LO10-3, LO10-4]

Baird Company makes Polish sausage. It applied manufacturing overhead to production based on standard direct labor-hours. According to the companys planning budget, the following manufacturing overhead costs should be incurred at an activity level of 30,000 labor-hours (the denominator activity level):

Variable manufacturing overhead cost	$ 172,500
Fixed manufacturing overhead cost	232,500
Total manufacturing overhead cost	$ 405,000

During the most recent year, the following operating results were recorded:

Activity:
Actual labor-hours worked	27,000
Standard labor-hours allowed for the actual output	28,000
Cost:
Actual variable manufacturing overhead cost incurred	$ 199,800
Actual fixed manufacturing overhead cost incurred	$ 210,000

At the end of the year, the companys Manufacturing Overhead account contained the following data:

Manufacturing Overhead
Debit	Credit
Actual	409,800	Applied	378,000
	31,800

Management would like to determine the cause of the $31,800 underapplied overhead.

Required:

1. Compute the predetermined overhead rate. Break the rate down into variable and fixed cost elements.
2. Show how the $378,000 Applied figure in the Manufacturing Overhead account was computed.
3. Break down the $31,800 underapplied overhead into four components: (1) variable overhead rate variance, (2) variable overhead efficiency variance, (3) fixed overhead budget variance, and (4) fixed overhead volume variance.

RQUIRED 1

Compute the predetermined overhead rate. Break the rate down into variable and fixed cost elements.

Note: Round your answers to 2 decimal places.

Pretermined Overhead Rate		Per hour
Variable Element		Per hour
Fixed Element		Per hour

REQUIRED 2

Show how the $378,000 Applied figure in the Manufacturing Overhead account was computed.

Note: Round your per hour value to 2 decimal places.

per hour=

RQUIRED 3

Break down the $31,800 underapplied overhead into four components: (1) variable overhead rate variance, (2) variable overhead efficiency variance, (3) fixed overhead budget variance, and (4) fixed overhead volume variance.

Note: Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.

Variable overhead:
Rate variance
Efficiency variance
Fixed overhead:
Budget variance
Volume variance