QUESTION ONE

FIXED OVERHEAD SPENDING AND VOLUME VARIANCES, COLUMNAR AND FORMULA APPROACHES

A company provided the following information:

Standard fixed overhead rate $($SFOR$)$ per direct labour hour $$7\mathrm{.}00$

Actual fixed overhead rate $($AFOR$)$ per direct labour hour $$6\mathrm{.}95$

Actual direct labour hours worked $($AH$)36,100$

Actual production in units $12,000$

Standard hours allowed for actual units produced $($SH$)36,000$

Required:

$1.$ Using the columnar approach, calculate the fixed overhead spending and efficiency variances.

$2$ Marks

$2.$ Using the formula approach, calculate the fixed overhead spending variance.

$3$ Marks

$3.$ Using the formula approach, calculate the fixed overhead efficiency variance.

$3$ Marks

$4.$ Calculate the total fixed overhead variance.

$2$ Marks

QUESTION TWO

FLEXIBLE BUDGET, OVERHEAD VARIANCES

ACTIVITY FLEXIBLE BUDGET

Cohlmia Company provided information on the following four overhead activities.

Activity Driver Fixed Cost Variable Rate

Maintenance Machine hours $$40,000$ $ $2\mathrm{.}50$

Machining Machine hours $25,0003\mathrm{.}00$

Setting up Setups $-2,250$

Purchasing Purchase orders $75,0006\mathrm{.}00$

Cohlmia has found that the following driver levels are associated with two different levels of production.

Driver $40,000$ units $60,000$ units

Machine hours $60,00090,000$

Setups $5070$

Purchase orders $10,00016,000$

Required:

$1.$ Prepare an activity$-$based flexible budget.

$2$ Marks

QUESTION THREE

OVERHEAD APPLICATION, FIXED AND VARIABLE OVERHEAD VARIANCES

Tules Company is planning to produce $2,400,000$ power drills for the coming year. The company uses direct labour hours to assign overhead to products. Each drill requires $0\mathrm{.}5$ standard hour of labour for completion. The total budgeted overhead was $$2,700,000.$ The total fixed overhead budgeted for the coming year is $$1,320,000.$ Predetermined overhead rates are calculated using expected production, measured in direct labour hours. Actual results for the year are:

Actual production $($units$)2,360,000$

Actual direct labour hours $1,190,000$

Actual variable overhead $$1,410,000$

Actual fixed overhead $$1,260,000$

Required:

$1.$ Compute the applied fixed overhead.

$4$ Marks

$2.$ Compute the fixed overhead spending and efficiency variances.

$5$ Marks

$3.$ Compute the applied variable overhead.

$4$ Marks

$4.$ Compute the variable overhead spending and volume variances.

$5$ MARKS