Reference no: EM132528606

Chilczuk, S.A., of Gdansk, Poland, is a major producer of classic Polish sausage. The company uses a standard cost system to help control costs. Manufacturing overhead is applied to production on the basis of standard direct labor-hours.

According to the company's planning budget, the following manufacturing overhead costs should be incurred at an activity level of 17,000 labor-hours (the denominator activity level):

Variable manufacturing overhead cost$42,500

Fixed manufacturing overhead cost 76,500

Total manufacturing overhead cost$119,000

During the most recent year, the following operating results were recorded:

Activity:

Actual labor-hours worked 14,000

Standard labor-hours allowed for the actual output 15,000

Cost: Actual variable manufacturing overhead cost incurred$49,000

Actual fixed manufacturing overhead cost incurred$63,750

At the end of the year, the company's Manufacturing Overhead account contained the following data:

Manufacturing OverheadActual112,750

Applied105,000 7,750

Management would like to determine the cause of the $7,750 underapplied overhead.

Required:

Question 1. Compute the predetermined overhead rate. Break the rate down into variable and fixed cost elements.

Question 2. Show how the $105,000 Applied figure in the Manufacturing Overhead account was computed.

Question 3. Breakdown the $7,750 underapplied overhead into four components: (1) variable overhead rate variance, (2) variable overhead efficiency variance, (3) fixed overhead budget variance, and (4) fixed overhead volume variance.