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    Controllable overhead variance and the overhead volume

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    MANAGERIAL ANALYSIS
    BYP8-2 Mo Vaugh and Associates is a medium-sized company located near a large
    metropolitan area in the Midwest. The company manufactures cabinets of mahogany, oak, and other fine woods for use in expensive homes, restaurants, and hotels. Although some of the work is custom, many of the cabinets are a standard size. One such non-custom model is called Luxury Base Frame. Standard production is 1,000 units. Each unit has a direct labor hour standard of 5 hours. Overhead is applied to production based on standard direct labor hours. During the most recent month, only 900 units were produced; 4,500 direct labor hours were allowed for standard production, but only 4,000 hours were used. Standard and actual overhead costs were as follows.

    Standard (1,000 units) Actual (900 units)
    Indirect materials $12,000 $12,300
    Indirect labor 43,000 51,000
    (Fixed) Manufacturing 22,000 22,000
    supervisors salaries
    (Fixed) Manufacturing office 13,000 11,500
    employees salaries
    (Fixed) Engineering costs 27,000 25,000
    Computer costs 10,000 10,000
    Electricity 2,500 2,500
    (Fixed) Manufacturing building 8,000 8,000
    depreciation
    (Fixed) Machinery depreciation 3,000 3,000
    (Fixed) Trucks and forklift 1,500 1,500
    depreciation
    Small tools 700 1,400
    (Fixed) Insurance 500 500
    (Fixed) Property taxes 300 300
    Total $143,500 $149,000

    Instructions
    a. Determine the overhead application rate.
    b. Determine how much overhead was applied to production.
    c. Calculate the controllable overhead variance and the overhead volume
    variance.
    d. Decide which overhead variances should be investigated.
    e. Discuss causes of the overhead variances. What can management do to
    improve its performance next month?

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    https://brainmass.com/business/management-accounting/controllable-overhead-variance-and-the-overhead-volume-42472

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    Instructions
    a. Determine the overhead application rate.
    b. Determine how much overhead was ...

    Solution Summary

    This explains the computation of controllable overhead variance and the overhead volume variance.

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