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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Zepol Company is planning to produce 600,000 power drills for the coming year. The company uses direct labor hours to assign overhead to products. Each drill requires 0.75 standard hour of labor for completion. The total budgeted overhead was $1,777,500. The total fixed overhead budgeted for the coming year is $832,500. Predetermined overhead rates are calculated using expected production, measured in direct labor hours. Actual results for the year are:

Chapter 10, Problem 59E, Zepol Company is planning to produce 600,000 power drills for the coming year. The company uses

Required:

  1. 1. Compute the applied fixed overhead.
  2. 2. Compute the fixed overhead spending and volume variances.
  3. 3. Compute the applied variable overhead.
  4. 4. Compute the variable overhead spending and efficiency variances.

1.

To determine

Calculate the value of applied fixed overhead.

Explanation

Overhead Variance:

The amount obtained when actual overhead is deducted from applied overhead is known as overhead variance. Overhead variance is calculated to find whether the overhead is over applied or under applied.

Use the following formula to calculate the applied fixed overhead:

Applied Fixed Overhead=Fixed Overhead Rate1×Standard Hours2

Substitute $1.85 for fixed overhead rate and 445,500 for standard hours in the above formula.

Applied Fixed Overhead=$1.85×445,500 hours=$824,175

Therefore, the applied fixed overhead is $824,175.

Working Note:

1

2.

To determine

Calculate the value of fixed overhead spending and volume variances.

3.

To determine

Calculate the value of applied variable overhead.

4.

To determine

Calculate the value of variable overhead spending and efficiency variances.

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