Question 3

Youve gathered the following information regarding the Widget Department.

On the 1 December 2017 the overhead budget for the year ending 30 June 2018 was finalised:

Output: 216,000 units

Variable Costs: $7 per unit

Fixed Cost: $520,560

Required:

(a) calculate the predetermined factory overhead application rate for the year

Actual Results for Year Ended 30 June 2018.

Output: 210,000 units

Actual Expenditure was $7.20 per unit for Variable Cost and total Fixed Cost $451,500

Required:

(b) calculate under-/over-applied overhead. The resulting variance is deemed insignificant. Provide the general journal to adjust COGS accordingly.

(c) calculate the expenditure and capacity variances for the year ended 30 June 2018. Determine whether the spending variance and the capacity variance are favourable or unfavourable. Your answer must show the breakdown of the overheads as variable and fixed overheads.

(d) Explain to your Manager what the variances are indicating.