Reference no: EM132728884

Question: Determining Budgeted Overhead

Calculating Factory Overhead: Two Variances

The overhead application rate for a company is $12 per unit, made up of $7 per unit of fixed overhead and $5 per unit of variable over- head. Normal capacity is 10,000 units. In one month, there was a favorable flexible budget variance of $2,500. Actual overhead for the month was $110,000 and actual units produced were 15,125. Based on this information, determine the amount of the budgeted overhead for the actual level of production.

Munoz Manufacturing Co. normally produces 12,000 units of product X each month. Each unit requires 2.5 hours of direct labor, and factory overhead is applied on a direct labor hour basis. Fixed costs and variable costs in factory overhead at the normal capacity are $3.00 and $2.00 per direct labor hour, respectively. Cost and production data for May follow: Production for the month 11,000 UNITS Direct labor hours used 22,500 HOURS Factory overhead incurred for: Variable costs $33,000 Fixed costs $60,500

a. Calculate the flexible-budget variance.

b. Calculate the production-volume variance.

c. Was the total factory overhead under- or overapplied? By what amount?