Warner Manufacturing Has Established the Following Master Flexible Budget for the Current

Essay

Warner Manufacturing has established the following master flexible budget for the current year:

$\begin{array} { l ccc} & & \underline { \text { Production in Units } } & \\&\underline { 80,000 }& \underline { 120,000 } & \underline { 160,000 } \\\text { Variable expenses: } \\\text { Raw materials } & \$ 152,000 & 228,000 & \\\text { Direct labour } & 160,000 & 240,000 & 320,000 \\\text { Manufacturing overhead } & \underline { 120,000 } & \underline { 180,000 } & \underline { 240.000 } \\\text { Total variable expenses } & \underline { \$ 432,000 } & \underline { \$ 648,000 } & \underline { \$ 864.000 }\end{array}$
$\begin{array} { l r r r } \text { Fixed expenses: }\\\text { Manufacturing overhead } & \$ 300,000 & \$ 300,000 & \$ 300,000 \\ \text { Selling and administrative } & \underline { 192.000 } & \underline { 192.000 } & \underline { 192.000 } \\ \text { Total fixed expenses } & \$ 492.000 & \$ 492.000 & \$ 492.000\\\\\text { Total expenses}&\$ 924.000&\$ 1.140 .000 &\$ 1.356,000 \\ \end{array}$

Manufacturing overhead is applied on the basis of machine hours. At standard, each unit of product requires one machine hour to complete.

Required:

a) The denominator activity level is 120,000 units. What are the predetermined variable and fixed manufacturing overhead rates?
b) Actual data for the year were as follows:

$\begin{array} { l r } \text { Actual variable manufacturing overhead cost } & \$ 159,500 \\\text { Actual fixed manufacturing overhead cost } & \$ 305,000 \\\text { Actual machine hours incurred } & 110,000 \\\text { Units produced } & 105,000\end{array}$
Compute the variable overhead spending and efficiency variances and the fixed overhead budget and volume variances for the year.