At the beginning of the year, the budget showed the following plan: 45,000 units and 9,000 machine hours. The company uses a flexible budget for its overhead costs.
End-of-year results show that 42,000 units were produced and 8,400 machine hours were used. Actual costs were as follows (actual fixed costs equaled budgeted):
Herman Company has the following information related to its overhead costs:

Required:
(1) Prepare an overhead static budget for variable overhead only with variances.
(2) Prepare an overhead flexible budget for variable overhead only with variances.
(3) Are there any variances that might signal a need for investigation, if so, which ones and why?

Question

At the beginning of the year, the budget showed the following plan: 45,000 units and 9,000 machine hours. The company uses a flexible budget for its overhead costs.
End-of-year results show that 42,000 units were produced and 8,400 machine hours were used. Actual costs were as follows (actual fixed costs equaled budgeted):
  Herman Company has the following information related to its overhead costs:
 
Required:
(1) Prepare an overhead static budget for variable overhead only with variances.
(2) Prepare an overhead flexible budget for variable overhead only with variances.
(3) Are there any variances that might signal a need for investigation, if so, which ones and why?

Quizplus · Accepted Answer

The Answer of At the beginning of the year, the budget showed the following plan: 45,000 units and 9,000 machine hours. The company uses a flexible budget for its overhead costs.
End-of-year results show that 42,000 units were produced and 8,400 machine hours were used. Actual costs were as follows (actual fixed costs equaled budgeted):
  Herman Company has the following information related to its overhead costs:
 
Required:
(1) Prepare an overhead static budget for variable overhead only with variances.
(2) Prepare an overhead flexible budget for variable overhead only with variances.
(3) Are there any variances that might signal a need for investigation, if so, which ones and why?

At the Beginning of the Year, the Budget Showed the Following