Response to the following problem:
Best Around, Inc., is a manufacturer of vacuums and uses standard costing. Manufacturing overhead (both variable and fixed) is allocated to products on the basis of budgeted machine-hours. In 2012, budgeted fixed manufacturing overhead cost was $17,000,000. Budgeted variable manufacturing overhead was $10 per machine-hour. The denominator level was 1,000,000 machine-hours.
Required:
1. Prepare a graph for fixed manufacturing overhead. The graph should display how Best Around, Inc.'s fixed manufacturing overhead costs will be depicted for the purposes of
(a) Planning and control and (
b) Inventory costing.
2. Suppose that 1,125,000 machine-hours were allowed for actual output produced in 2012, but 1,150,000 actual machine-hours were used. Actual manufacturing overhead was $12,075,000, variable, and $17,100,000, fixed. Compute
(a) the variable manufacturing overhead spending and efficiency variances and
(b) the fixed manufacturing overhead spending and production-volume variances.
3. What is the amount of the under- or overallocated variable manufacturing overhead and the under- or overallocated fixed manufacturing overhead? Why are the flexible-budget variance and the under- or overallocated overhead amount always the same for variable manufacturing overhead but rarely the same for fixed manufacturing overhead?
4. Suppose the denominator level was 1,360,000 rather than 1,000,000 machine-hours. What variances in requirement 2 would be affected? Recompute them.