Question

Norwall Company’s budgeted variable manufacturing overhead cost is $3.00 per machine-hour and its budgeted fixed manufacturing overhead is $300,000 per month.
The following information is available for a recent month:

(a) The denominator activity of 60,000 machine-hours is used to compute the predetermined overhead rate.
(b) At a denominator activity of 60,000 machine-hours, the company should produce 40,000 units of product.
(c) The company’s actual operating results were:

Number of units produced . . . . . . . . . . . . . . . . . . . . . . . . . 42,000
Actual machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,000
Actual variable manufacturing overhead cost . . . . . . . . . $185,600
Actual fixed manufacturing overhead cost . . . . . . . . . . . $302,400

Required:
(1) Compute the predetermined overhead rate and break it down into variable and fixed cost elements.
(2) Compute the standard hours allowed for the actual production.

Answer 1

Answer:

Explanation:

1. Predetermined overhead rate =

(Budgeted fixed manufacturing overhead+Budgeted Variable overhead)/Machine hours = (300,000 +(3*60,000))/60,000 = $8/machine hour

Predetermined variable overhead rate = Budgeted variable manufacturing overhead/ machine hours = (3*60,000)/60,000 = $3/machine hour

Predetermined fixed overhead rate = Budgeted fixed manufacturing overhead/ machine hours = 300,000/60,000 = $5/machine hour

2. Standard hours allowed for the actual production

Standard units production = 40,000

Standard machine hours = 60,000

Standard machine hour per unit = 60,000/40,000 = 1.5 hours/unit

Number of units produced 42,000

Standard hours allowed for the actual production 42,000*1.5 = 63,000