The fixed overhead budget and volume variances

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Reference no: EM131262623

Morton Company’s variable manufacturing overhead should be $4.50 per standard direct labor-hour and fixed manufacturing should be $270,000 per year. The company manufactures a single product that requires two direct labor-hours to complete. The direct labor wage rate is $15 per hour. Four feet of raw material are required for each unit of product; the standard cost of the material is $8.75 per foot. Although normal activity is 30,000 direct labor-hours each year, the company expects to operate at a 40,000-hour level of activity this year.

Assume that the company actually produces 18,000 units and works 38,000 direct labor-hours during the year. Actual manufacturing overhead costs for the year are:

Variable manufacturing overhead cost...... $174,800

Fixed manufacturing overhead cost.......... 271,600

Total manufacturing overhead cost.......... $446,400

Determine the cause of the underapplied or overapplied overhead for the year by computing the variable overhead rate and efficiency variances and the fixed overhead budget and volume variances.

Reference no: EM131262623

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