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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
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Finance 3 Months Ago 10 Views
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