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“I just can't understand all the red ink,” said Western to Sarah Mason, supervisor of another department. “When the boss called me in, I thought he was going to give me a pat on the back because I know for a fact that my department worked more efficiently last month than it has ever worked before. Instead, he tore me apart. I thought for a minute that it might be over the supplies that were stolen out of our warehouse last month. But they only amounted to a couple of thousand dollars, and just look at this report. Everything is unfavourable, and I don't even know why.”

The budget for the machining department had called for production of 14,000 units last month, which is equal to a budgeted activity level of 35,000 machine-hours (at a standard time of 2.5 hours per unit). Actual production in the machining department for the month was 16,000 units.

1. Prepare a new overhead performance report that will help Western's superiors assess efficiency and cost control in the machining department.

2. Would the supplies stolen out of the warehouse be included as part of the variable overhead spending variance or as part of the variable overhead efficiency variance for the month? Explain

 Cost formula(per machine hour) Actual Budget Variance Machine-Hours 38,000 35,000 Variable overhead costs: Utilities 0.4 15,700 14,000 1,700 U Indirect labour 2.30 86,500 80,500 6,000 U Supplies 06 26,000 21,000 2,900 U Maintenance 1.2 44,900 42,000 2,900 U Total variable overhead cost 4.50 173,100 157,500 15,600 Fixed overhead cost: Supervision 38,000 38,000 Maintenance 92,400 92,000 400 U Deprecitaion 80,000 80,000 Total fixed overhead cost 210,400 210,000 400 U Total overhead cost 383,500 367,500 16,000 U

## Solution 5 (1 Ratings )

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