Question

Maxwell Company uses a standard cost accounting system and applies production overhead to products on the basis of machine hours. The following information is available for the year just ended:

Standard variable-overhead rate per hour: $7.50
Standard fixed-overhead rate per hour: $12.40
Planned activity during the period: 19,000 machine hours
Actual production: 12,200 finished units
Machine-hour standard: Two completed units per machine hour
Actual variable overhead: $153,180
Actual total overhead: $432,900
Actual machine hours worked: 22,200
Required:
1. Calculate the budgeted fixed overhead for the year.
2. Compute the variable-overhead spending variance.
3. Calculate the company’s fixed-overhead volume variance.
4-a. Did Maxwell spend more or less than anticipated for fixed overhead? How much?
4-b. What was the difference in actual and anticipated overhead?

Answer 1

1. $235,600

2. $13,320 favorable

3. $159,960 Unfavorable

4-a. Maxwell spent more than anticipated for fixed overhead

b. $44,120

Step-by-step explanation:

The computation of given question is shown below:-

1. Budgeted fixed overhead = Planned activity × Standard fixed overhead rate per hour

= 19,000 x $12.40

= $235,600

2. Variable Overhead Spending Variance = (Actual machine hours × Standard variable rate per hour) - Actual Variable Overhead

= 22,200 × $7.50 - $153,180

= $13,320 favorable

3. Fixed Overhead Volume Variance = Budgeted fixed overhead - Actual production × Standard hours for actual output × Standard fixed overhead rate per hour

= $235,600 - 6,100 × $12.40

= $159,960 Unfavorable

Note: Two completed units per machine hour

So, Standard hours for actual output = 12,200 ÷ 2

= 6,100

4-a. Maxwell spent more than anticipated for fixed overhead

b. Difference = Actual total overhead - Actual variable overhead - Budgeted fixed overhead

($432,900 - $153,180) - $235,600

= $44,120