Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 36

Factory Overhead Analysis—Two, Three, and Four Variances Walkenhorst Company’s machining department prepared its 2010 budget based on the following data:

Practical capacity	40,000 units
Machine hours per unit	2
Variable factory overhead	$3.00 per machine hour
Fixed factory overhead	$360,000

The department uses machine hours to apply factory overhead. In 2010, the department used 85,000 machine hours and $625,000 in total manufacturing overhead to manufacture 42,000 units. Actual fixed overhead for the year was $375,000.

Required Set up an Excel spreadsheet to determine for the year:

1. The variable, fixed, and total factory overhead application rates.

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2. The flexible budget for overhead cost based on output achieved in 2010.

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3. The production-volume variance.

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4. The total overhead spending variance.

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5. The overhead efficiency variance.

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6. The variable and fixed overhead spending variances.

Step 1 of 6

Factory Overhead Variances: Four Variance Analysis(50-60 Minutes)

1.?

Total Factory Overhead Application Rate:
Fixed factory overhead application rate:
Total machine hours at practical capacity:
Number of units of output at practical capacity =	40,000
Machine hours per unit	x       2
Standard machine hours @ practical capacity	80,000
Fixed factory overhead rate per machine hour = budgeted
fixed overhead @ practical capacity/machine hours @ practical capacity
= $360,000/80,000 machine hours =	$4.50
Variable factory overhead rate per machine hour (given)	+ 3.00
Total overhead application rate per machine hour	$7.50