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PROBLEM 8A-10A Applying Overhead; Overhead Variances [LO6, LO7] Highland Shortbread, Lid.. of Aberdeen, Scotland, produces a single product and uses a standard cost system to
PROBLEM 8A-10A Applying Overhead; Overhead Variances [LO6, LO7] Highland Shortbread, Lid.. 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 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 year): CHECK FIGURE (2) Overhead applied: 92,000; (3) Volume variance: 8,000U During the year, the following operating results were recorded: At the end of the year, the company's Manufacturing Overhead account contained the following data: Management would like to determine the cause of the 4,500 underapplied overhead. Required: 1. Compute the predetermined overhead rate for the year. Break it down into variable and fixed cost elements. 2. Show how the 92,000 "Applied costs" figure in the Manufacturing Overhead account was computed. 3. Analyze the 64,500 underapplied overhead figure in terms of the variable overhead efficiency and rate variances and the fixed overhead budget and volume variances. 4. Explain the meaning of each variance that you computed in (3) above
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