Asked by Gildardo Ramos on May 22, 2024
Verified
Canel Incorporated makes a single product--an electrical motor used in many long-haul trucks. The company has a standard cost system in which it applies overhead to this product based on the standard machine-hours allowed for the actual output of the period. Data concerning the most recent year appear below:
Required:
a. Determine the fixed overhead budget variance for the year.
b. Determine the fixed overhead volume variance for the year.
Fixed Overhead Volume
refers to the portion of fixed overhead costs that is associated with the production volume, used in calculating efficiency and profitability.
Standard Machine-Hours
A measure used in manufacturing to allocate costs to products based on the estimated number of hours the machinery is used.
Actual Output
Actual output is the quantity of finished goods or services produced by a company in a specific period.
- Appraise a spectrum of variances linked to manufacturing overhead, covering budget, volume, rate, and efficiency variances.
Verified Answer
= $182,965 − $163,965 = $19,000 Unfavorable
b. Fixed component of the predetermined overhead rate = $163,965/25,500 machine-hours
= $6.43 per machine-hour
Volume variance = Budgeted fixed overhead − Fixed overhead applied to work in process
= $163,965 − ($6.43 per machine-hour × 22,100 machine-hours)
= $163,965 − ($142,103)
= $21,862 Unfavorable
Learning Objectives
- Appraise a spectrum of variances linked to manufacturing overhead, covering budget, volume, rate, and efficiency variances.
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