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Baird Company makes classic Polish sausage


Baird Company makes classic Polish sausage. The company uses a standard cost system to help control costs. Manufacturing overhead is applied to production on the basis of standard direct labor-hours. According to the company’s planning budget, the following manufacturing overhead costs should be incurred at an activity level of 24,000 labor-hours (the denominator activity level): Variable manufacturing overhead cost $ 102,000 Fixed manufacturing overhead cost 150,000 Total manufacturing overhead cost $ 252,000 During the most recent year, the following operating results were recorded: Activity: Actual labor-hours worked 21,000 Standard labor-hours allowed for the actual output 22,000 Cost: Actual variable manufacturing overhead cost incurred $ 117,600 Actual fixed manufacturing overhead cost incurred $ 132,000 At the end of the year, the company’s Manufacturing Overhead account contained the following data: Manufacturing Overhead Actual 249,600 Applied 231,000 18,600 Management would like to determine the cause of the $18,600 underapplied overhead. Required: 1. Compute the predetermined overhead rate. Break the rate down into variable and fixed cost elements. 2. Show how the $231,000 Applied figure in the Manufacturing Overhead account was computed. 3. Breakdown the $18,600 underapplied overhead into four components: (1) variable overhead rate variance, (2) variable overhead efficiency variance, (3) fixed overhead budget variance, and (4) fixed overhead volume variance.

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