Chapter 8, Problem 8.32P

1.

To determine

To prepare: Graph for fixed manufacturing overhead which shows the way fixed manufacturing overhead costs will be depicted for the purposes of (a) planning and control and (b) inventory costing.

Given information:

2014,

Budgeted fixed manufacturing overhead cost is $17,000,000.

Budgeted variable manufacturing overhead is $10 per machine hour.

The denominator level is $1,000,000 machine hours.

Budgeted fixed overhead cost per machine hour is $\frac{\$17,000,000}{\$1,000,000}=\$17\text{ per hour}$.

2.

(a)

To determine

Variable manufacturing overhead spending and efficiency variances.

Given information:

2014,

Budgeted hours allowed for actual output is 1,125,000.

Actual machine hours are 1,200,000.

Actual variable manufacturing overhead is $12,075,000.

(b)

To determine

Fixed manufacturing overhead spending and volume variances.

Given information:

2014,

Budgeted hours allowed for actual output is 1,125,000.

Actual machine hours are 1,200,000.

Actual fixed manufacturing overhead is $17,100,000.

Budgeted fixed overhead rate is $17 (calculated in part 1).

3.

To determine

The under or over allocated variable manufacturing overhead and the under or over allocated fixed manufacturing overhead and the reason for flexible budget variance and the under or over allocated overhead amount always the same for variable manufacturing overhead but rarely the same for fixed manufacturing overhead.

Given information:

2014,

Variable spending variance is $75,000 U (calculated in part B).

Variable efficiency variance is $750,000 U (calculated in part B).

Fixed spending variance is $100,000 U (calculated in part B).

Fixed volume variance is $340,000 F (calculated in part B).

Actual quantity of input used is 1,200,000 hours.

Actual rate is $10.0625.

Budgeted quantity for actual output is $1,125,000.

Budgeted rate is $10.

4.

To determine

The effect on the variances due to change in denominator.

Given information:

2014,

Budgeted hours allowed for actual output is 1,125,000.

Actual machine hours are 1,200,000.

Actual fixed manufacturing overhead is $17,100,000.

Denominator is 1,700,000

Budgeted fixed overhead rate is $\frac{\$17,000,000}{\$1,700,000}=\$10$.