Rowe Company manufactures a variety of products in several departments. Budgeted costs for the company's Finishing Department for the year have been set as follows:

Variable costs:

Direct materials . . . . . . . . . . . . . . . $ 600,000

Direct labor . . . . . . . . . . . . . . . . . . . 450,000

Indirect labor. . . . . . . . . . . . . . . . . . 30,000

Utilities . . . . . . . . . . . . . . . . . . . . . . 50,000

Maintenance. . . . . . . . . . . . . . . . . . 20,000

Total variable cost . . . . . . . . . . . . . 1,150,000

Fixed costs:

Supervisory salaries . . . . . . . . . . . . 60,000

Insurance . . . . . . . . . . . . . . . . . . . . 5,000

Depreciation . . . . . . . . . . . . . . . . . . 190,000

Equipment rental . . . . . . . . . . . . . . 45,000

Total fixed cost . . . . . . . . . . . . . . . . 300,000

Total budgeted cost . . . . . . . . . . . $1,450,000

Budgeted direct labor-hours . . . . . . . 50,000

After careful study, the company has determined that operating activity in the Finishing Department is best measured by direct labor-hours. The cost formulas used to develop the budgeted costs above are valid over a relevant range of 40,000 to 60,000 direct labor-hours per year.

Required:

1. Prepare a manufacturing overhead flexible budget for the Finishing Department using increments of 10,000 hours. (The company does not include direct materials and direct labor costs in the flexible budget.)

2. Assume that the company computes predetermined overhead rates by department. Compute the rates, variable and fixed, that will be used to apply Finishing Department overhead costs to production.

3. Suppose that during the year the following actual activity and costs are recorded in the Finishing Department:

Actual direct labor-hours worked . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,000

Standard direct labor-hours allowed for the output of the year . . . . . . . . 45,000

Actual variable manufacturing overhead cost incurred . . . . . . . . . . . . . . $89,700

Actual fixed manufacturing overhead cost incurred . . . . . . . . . . . . . . . . $296,000

a. A T-account for manufacturing overhead costs in the Finishing Department is given below. Determine the amount of applied overhead cost for the year, and compute the underapplied or overapplied overhead.

b. Analyze the underapplied or overapplied overhead in terms of the variable overhead spending and efficiency variances and the fixed overhead budget and volumevariances.

Transcribed Image Text:

Manufacturing Overhead Actual costs 385,700