Fixed Overhead Rate; Denominator Level; Two-Variance Breakdown of Total FactoryOverhead Cost Variance Overhead information for Cran-Mar Company for October follows:Total factory overhead cost incurred $30,000Budgeted fixed factory overhead cost $7,125Total standard overhead rate per machine hour (MH) $4.90Standard variable factory overhead rate per MH $3.00Standard MHs allowed for the units manufactured 3,600Required1. What is the standard fixed factory overhead rate per machine hour (MH)?2. What is the denominator activity level that was used to establish the fixed factory overhead applicationrate? (Round your answer to the nearest whole number.)3. Two-way analysis (breakdown) of the total factory overhead cost variance: Using panel B in Exhibit 15.7as a guide, calculate the following factory overhead cost variances for October. [Note: Round answers tothe nearest whole dollar, and indicate whether each variance is favorable (F) or unfavorable (U).]a. Total flexible-budget variance.b. Production volume variance.c. Total overhead cost variance.4. Confirm your answer to 3b above by using the model at the bottom of Exhibit 15.6 to calculate theproduction volume variance. Round your answer to the nearest whole dollar and indicate whether thevariance is favorable (F) or unfavorable (U).
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Fixed
Overhead Cost
Total factory overhead cost incurred $30,000
Budgeted fixed factory overhead cost $7,125
Total standard overhead rate per machine hour (MH) $4.90
Standard variable factory overhead rate per MH $3.00
Standard MHs allowed for the units manufactured 3,600
Required
1. What is the standard fixed factory overhead rate per machine hour (MH)?
2. What is the denominator activity level that was used to establish the fixed factory overhead application
rate? (Round your answer to the nearest whole number.)
3. Two-way analysis (breakdown) of the total factory overhead cost variance: Using panel B in Exhibit 15.7
as a guide, calculate the following factory overhead cost variances for October. [Note: Round answers to
the nearest whole dollar, and indicate whether each variance is favorable (F) or unfavorable (U).]
a. Total flexible-budget variance.
b. Production volume variance.
c. Total overhead cost variance.
4. Confirm your answer to 3b above by using the model at the bottom of Exhibit 15.6 to calculate the
production volume variance. Round your answer to the nearest whole dollar and indicate whether the
variance is favorable (F) or unfavorable (U).
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