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Shasta Company's flexible budget

Shasta Company's flexible budget (in condensed form) for an expected activity level of 75,000 units of production based on 187,500 standard machine hours is provided below.

Variable overhead $843,750
Fixed Overhead $1,406,250
Total Overhead $2,250,000

During 1997 the company's actual operating results were
Number of units produced 72,500
Machine hours used 180,000
Variable costs incurred $826,500
Fixed costs incurred $1,395,000

Required:
1. Compute the variable, fixed and total predetermined overhead application rate for 1997
2. Compute the standard machine hours allowed for the actual production level achieved in 1997
3. Compute the variable overhead spending and efficiency variance for 1997
4. Compute the fixed overhead budget and volume variance for 1997

Solution Preview

1. Compute the variable, fixed and total predetermined overhead application rate for 1997

Standard variable overhead per hour = $843,750/187,500 hours = $4.50 per standard hour

Predetermined fixed factory overhead rate = budgeted fixed factory overhead/normal activity
= $1,406,250/187,500 hours
= $7.50 per standard hour

2. Compute the standard machine hours allowed for the actual production level achieved in 1997

Standard machine hour allowed per unit = Standard machine hours/budget ...

Solution Summary

This solution is comprised of a detailed calculation to find the variances required for Shasta Company.

$2.19