Chapter 11, Problem 38P

Newark Plastics Corporation developed its overhead application rate from the annual budget. The budget is based on an expected total output of 720,000 units requiring 3,600,000 machine hours. The company is able to schedule production uniformly throughout the year. Machine hours is the cost driver for overhead costs.

A total of 66,000 units requiring 315,000 machine hours were produced during May. Actual over head costs for May amounted to $375,000. The actual costs, as compared to the annual budget and to one-twelfth of the annual budget, are as follows:

Required:

1. 1. Prepare a schedule showing the following amounts for Newark Plastics for May.
   1. a.      Applied overhead costs.
   2. b.      Variable-overhead spending variance.
   3. c.       Fixed-overhead budget variance.
   4. d.      Variable-overhead efficiency variance.
   5. e.       Fixed-overhead volume variance.

Where appropriate, be sure to indicate whether each variance is favorable or unfavorable.

1. 2. Draw a graph similar to Exhibit 11–7 to depict the variable-overhead variances.
2. 3. Why does your graph differ from Exhibit 11–7, other than the fact that the numbers differ?