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Standard Costing System

Reed company uses a standard costing system. manufacturing overhead is applied to products based upon machine hours (MH). Use the following information to make the required calculations:

standard mh allowed 3 mh/unit
standard variable overhead rate $5/mh
actual units 18,000 units
budgeted units (used for the denominator) 20,000 units
variable overhead spending variance $4,000 U
actual cost - fixed overhead $105,000
budgeted fixed overhead $120,000
actual mh used 56,000 mh

calculate:
a) budgeted machine hours allowed for the actual output of 18,000 units
b) denominator machine hours
c) fixed overhead rate per unit and machine hours
d) actual variable overhead cost
e) variable overhead efficiency variance
f) fixed overhead spending variance
g) production volume variance
h) over or under applied variable overhead (make sure you indicate whether it is over or under )
i) over or under applied fixed overhead (make sure you indicate whether it is over or under )

Solution Summary

The solution computes budgeted machine hours, denominator machine hours, fixed overhead rate per unit and machine hours, actual variable overhead cost, variable overhead efficiency variance, fixed overhead spending variance, production volume variance, over or under applied variable overhead, over or under applied fixed overhead.

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