Ana Carillo 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 non-custom model is called Luxury Base Frame. Normal 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. InstructionsIndirect materialsIndirect labor(Fixed) Manufacturing supervisors salaries(Fixed) Manufacturing office employees salaries(Fixed) Engineering costsComputer costsElectricityRealWorld ForHIS(Fixed) Manufacturing building depreciation(Fixed) Machinery depreciation(Fixed) Trucks and forklift depreciationSmall tools(Fixed) Insurance(Fixed) Property taxesTotalStandard(1,000 units)$ 12,00043,00022,50013,00027,00010,0002,5008,0003,0001,500700500300$144,000Actual(900 units)$ 12,30051,00022,00012,50025,00010,00012,5008,0003,0001,5001,400500300$150,000a. Determine the overhead application rate.b. Determine how much overhead was applied to production.c. Calculate the total overhead variance, controllable variance, and 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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Answered: Ana Carillo and Associates is a…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Ana Carillo 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 non-custom model is called Luxury Base Frame. Normal 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.

Instructions
Indirect materials
Indirect labor
(Fixed) Manufacturing supervisors salaries
(Fixed) Manufacturing office employees salaries
(Fixed) Engineering costs
Computer costs
Electricity
RealWorld ForHIS
(Fixed) Manufacturing building depreciation
(Fixed) Machinery depreciation
(Fixed) Trucks and forklift depreciation
Small tools
(Fixed) Insurance
(Fixed) Property taxes
Total
Standard
(1,000 units)
$ 12,000
43,000
22,500
13,000
27,000
10,000
2,500
8,000
3,000
1,500
700
500
300
$144,000
Actual
(900 units)
$ 12,300
51,000
22,000
12,500
25,000
10,000
1
2,500
8,000
3,000
1,500
1,400
500
300
$150,000
a. Determine the overhead application rate.
b. Determine how much overhead was applied to production.
c. Calculate the total overhead variance, controllable variance, and 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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