Overhead information for Cran-Mar Company for October follows: Total overhead incurred $30,000
Budgeted fixed overhead $7,125
Total standard overhead rate per machine-hour (MH) $4.90
Standard variable overhead rate per MH $3.00
Standard MHs allowed for the units manufactured 3,600
1. What is the standard fixed factory overhead rate per machine-hour?
2. What is the denominator activity level that was used to establish the fixed overhead application rate?
3. Prepare a diagram, to calculate the following overhead variances for October:
a. Total flexible-budget variance for factory overhead.
b. Fixed overhead production volume variance.
c. Total factory overhead cost variance.

1. Standard Fixed factory overhead rate per machine hour = 1.9

Explanation:

1. Standard OH rate per MH $4.90

Less: Standard Variable OH rate $3.0

Fixed OH rate is 1.90

2. Denominator activity level : $3,750

Budgeted Fixed factory OH $7,125

Standard fixed overhead rate $1.90

3. a. Total flexible Budget variance:

Standard Variable Overhead (3,600 * $3.0) = $10,800

Budgeted Fixed Overhead $7,125

Total Overhead = $17,925

Actual Overheads $30,000

Variance $12,075 Unfavorable

b. Production Volume Variance :

Overheads based on Flexible budget $17,925

Standard Cost applied (3,600 hours * $4.90) $17,640

Variance $285 Favorable

c. Total factory overhead cost variance :

Actual overheads incurred $30,000

Standard cost applied to production $17,640

Variance $12,360 Unfavorable

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