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    Cost problem for Savanah Machine Tool Company

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    Savanah Machine Tool Company has an automated production process, and production activity is quantified in terms of machine hours. It uses a standard-costing system. The annual static budget for 20x6 called for 6,000 units to be produced, requiring 30,000 machine hours. The standard-overhead rate for the year was computed using this planned level of production. The 20x6 manufacturing cost report follows.

    Savanah Machine Tool company develops flexible budgets for different levels of activity for use in evaluating performance. It produced a total of 6,200 units during 20x6, requiring 32,000 machine hours. The preceding manufacturing cost report compares the company's actual cost for the year with the static budget and the flexible budget for two different activity levels.

    Compute the following:

    e. The variable-overhead rate per machine hour in a flexible budget formula.
    f. The standard fixed-overhead rate per machine hour used for product costing.
    g. The variable overhead spending variance.
    h. The variable overhead efficiency variance.
    i. The fixed overhead budget variance
    j. The fixed overhead volume variance.
    k. The total budgeted manufacturing cost for an output of 6,050 units.

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    Solution Summary

    The solution calculates a number of values based on the Savanah Machine Tool's cost structures. These include overheads, efficiencies, variances and rates using the flexible budget formula.