Please answer all sections and please show all work.
Norwall Company's variable manufacturing overhead should be $1.95 per standard machine-hour
and its fixed manufacturing overhead should be $51,336 per month.
The following information is available for a recent month:
a. The denominator activity of 28,520 machine-hours is used to compute the predetermined overhead rate.
b. At the 28,520 standard machine-hours level of activity, the company should produce 12,400 units of product.
c. The company�s actual operating results were:
Number of units produced 13,390 Actual machine-hours 29,780 Actual variable manufacturing overhead cost $ 53,604 Actual fixed manufacturing overhead cost $ 50,900 Required:
1. Compute the predetermined overhead rate and break it down into variable and fixed cost elements.
Predetermined overhead rate
Variable element
fixed element
2. Compute the standard hours allowed for the actual production.
3. Compute the variable overhead rate and efficiency variances and the fixed overhead budget and volume variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)
Variable overhead rate variance
Variable overhead efficiency variance
Fixed overhead budget variance
Fixed overhead volume variance
Please answer all sections and please show all work.
| Norwall Company's variable manufacturing overhead should be $1.95 per standard machine-hour |
| The following information is available for a recent month: |
| a. | The denominator activity of 28,520 machine-hours is used to compute the predetermined overhead rate. |
| b. | At the 28,520 standard machine-hours level of activity, the company should produce 12,400 units of product. |
| c. | The company�s actual operating results were: |
| Number of units produced | 13,390 | ||||||||
| Actual machine-hours | 29,780 | ||||||||
| Actual variable manufacturing overhead cost | $ | 53,604 | |||||||
| Actual fixed manufacturing overhead cost | $ | 50,900 | |||||||
| |||||||||
Related questions
Exercise 23-11 Computation of volume and controllable overhead variances LO P3
| World Company expects to operate at 80% of its productive capacity of 57,500 units per month. At this planned level, the company expects to use 25,300 standard hours of direct labor. Overhead is allocated to products using a predetermined standard rate based on direct labor hours. At the 80% capacity level, the total budgeted cost includes $70,840 fixed overhead cost and $298,540 variable overhead cost. In the current month, the company incurred $368,000 actual overhead and 22,300 actual labor hours while producing 43,000 units. |
| (1) | Compute the overhead volume variance. (Round all your intermediate calculations to 2 decimal places.)
|
Hampshire has always produced stick umbrellas. However, it is considering expanding its production to include collapsible umbrellas. This consideration has been spurred by Tours Today, a touring company that is interested in providing its customers with collapsible umbrellas imprinted with its logo. The management at Hampshire is currently working out a deal with the touring company to produce 3,000 collapsible umbrellas and believes it can sell those umbrellas for $14.00 each. Here are the costs that can be directly traced to this special order:
Direct Materials: $9,300
Direct Labor Hours: 600
Hourly Rate of Direct labor: $8.00
In the traditional costing approach, overhead is applied at the rate of $24.60 per labor hour. This expansion in production will add additional overhead costs. The total overhead costs (assuming production of the stick and collapsible umbrellas) to include the cost pools and cost drivers are provided in Table 2.
An alternative costing method that might benefit Hampshire is the implementation of activity-based costing (ABC). Hampshire would like to implement an ABC approach to analyze the production of this special order of collapsible umbrellas. The controller has assembled the following information:
| Stick | Collapsible | |
| Units Sold | 60,000 | 3,000 |
| Selling Price | $12.50 | $14.00 |
| Direct Material Cost per Unit | $3 | $3.10 |
| Direct Labor Cost per Hour | $7.50 | $8.00 |
| Variable Manufacturing Overhead | $0.40 | $0.40 |
| Variable Selling Costs | $1.10 | $1.10 |
| Labor Hours per Unit | 0.2 | 0.2 |
| Sales Orders | 120 | 1 |
| Purchase Orders | 50 | 3 |
| Production Runs | 45 | 6 |
| Material Moves | 86 | 10 |
| Machine Setups | 130 | 6 |
| Machine Hours | 525 | 32 |
| Inspections | 200 | 10 |
| Shipments | 60 | 3 |
Table 1: Direct Cost Information and Activities
| Activity | Activity Cost | Activity Cost Driver |
| Order Processing | $35,000 | Number of Sales Orders |
| Purchasing | $36,000 | Number of Purchase Orders |
| Material Handing | $28,000 | Material Moves |
| Machine Setup | $14,000 | Machine Setups |
| Production | $99,000 | Production Runs |
| Assembly | $80,000 | Machine Hours |
| Inspecting | $11,000 | Number of Inspections |
| Shipping | $7,500 | Number of Shipments |
Table 2: Activity Cost Pools and Cost Drivers
Another alternative to traditional costing and ABC is time-driven activity-based costing (TDABC). You will need to determine which of these three methods would be the best approach for the Hampshire Company. The following article may assist you in your analysis: Time-Driven Activity-Based Costing. Additionally, you may want to use the Shapiro Library to conduct further research on the three methods. You will need to defend your position when answering the prompts for the written portion of this section.
Using the information provided above, complete the following in the Hampshire Company Spreadsheet in order to assist you in responding to all components of Section IV:
1.Calculate the allocation rates for each cost driver using ABC.
2.Use the traditional costing approach to calculate the total cost and the unit cost of the stick and collapsible umbrellas.
3.Use ABC to compute the total costs and the unit cost for the stick and collapsible umbrellas.
4.Compute the difference between the product cost per stick and collapsible umbrellas using the unit cost that you computed with the traditional approach and the one that you computed using ABC.
| Requirement 1 | |||
| Activity | Total Costs | Quantity of Cost Allocation Base | Overhead Allocation Rate |
| Order Processing | $ | X | $ |
| Purchasing | $ | X | $ |
| Material Handing | $ | X | $ |
| Machine Setup | $ | X | $ |
| Production | $ | X | $ |
| Assembly | $ | X | $ |
| Inspecting | $ | X | $ |
| Shipping | $ | X | $ |
| Requirement 2 | |||
| Traditional Costing | |||
| Stick Umbrella | Collapsible Umbrella | Total | |
| Revenues | $ | $ | $ |
| Direct Materials | $ | $ | $ |
| Direct Labor | $ | $ | $ |
| Variable Overhead | $ | $ | $ |
| Variable Selling Costs | $ | $ | $ |
| Allocated Fixed Overhead | $ | $ | $ |
| Total Costs | $ | $ | $ |
| Operating Income | $ | $ | $ |
| Operating Income % | % | % | |
| Per Unit Operating Income | $ | $ | |
| Requirement 3 | |||
| Activity-Based Costing | |||
| Stick Umbrella | Collapsible Umbrella | Total | |
| Revenues | $ | $ | $ |
| Direct Materials | $ | $ | $ |
| Direct Labor | $ | $ | $ |
| Variable Overhead | $ | $ | $ |
| Variable Selling Costs | $ | $ | $ |
| Order Processing Costs | $ | $ | $ |
| Purchasing Costs | $ | $ | $ |
| Material Handing Costs | $ | $ | $ |
| Machine Setup Costs | $ | $ | $ |
| Production Costs | $ | $ | $ |
| Assembly Costs | $ | $ | $ |
| Inspecting Costs | $ | $ | $ |
| Shipping Costs | $ | $ | $ |
| Total Costs | $ | $ | $ |
| Operating Income | $ | $ | $ |
| Operating Income % | % | % | |
| Per Unit Operating Income | $ | $ | |
| Requirement 4 | |||
| Costs per Unit | Stick Umbrella | Collapsible Umbrella | |
| Traditional | $ | $ | |
| ABC | $ | $ | |
| Difference | $ | $ | |
| Requirement 5 | |||
