Reference no: EM132995353

Question - Nova Corporation produces a single product and uses a standard cost system to help control costs. Overhead is applied to production on the basis of machine hours. According to the company's flexible budget, the following overhead costs should be incurred at an activity level of 18,000 machine hours (the denominator activity level chosen for the current year):

Variable Overhead Costs $45,000

Fixed Overhead Costs $108,000

Total Overhead Costs $153,000

During the current year, the following operating results were recorded:

Actual Machine Hours Worked 15,000

Standard Machine Hours Allowed 16,000

Actual Variable Overhead Cost Incurred $38,000

Actual Fixed Overhead Cost Incurred $107,100

At the end of the year, the company's Manufacturing Overhead account showed total debits for actual overhead costs of $145,100 and total credits for overhead actually applied of $136,000. The difference ($9,100) represents underapplied overhead, the cause of which management would like to know.

Required -

a) Make the predetermined overhead rate that would have been used during the year, showing separately the variable and fixed components of the rate.

b) Show how the $136,000 of "Applied Costs" was computed.

c) Analyze the $9,100 underapplied overhead figure in terms of the variable overhead spending and efficiency variances and the fixed overhead budget and volume variances.

d) Make a journal entry to record the variable overhead costs incurred and applied, including the results of the variance analysis.

e) Make a journal entry to record the fixed overhead costs incurred and applied, including the results of the variance analysis.