Ronda Manufacturing Corporation uses a standard cost system with machine-hours as the activity base for overhead.Last year, Ronda incurred $840,000 of fixed manufacturing overhead and generated a $42,000 favorable fixed manufacturing overhead budget variance.The following data relate to last year's operations: What amount of total fixed manufacturing overhead cost did Ronda apply to production last year?
A)$837,900
B)$840,000
C)$926,100
D)$972,405

Question

Ronda Manufacturing Corporation uses a standard cost system with machine-hours as the activity base for overhead.Last year, Ronda incurred $840,000 of fixed manufacturing overhead and generated a $42,000 favorable fixed manufacturing overhead budget variance.The following data relate to last year's operations:  What amount of total fixed manufacturing overhead cost did Ronda apply to production last year?
A)$837,900 
B)$840,000 
C)$926,100 
D)$972,405

Quizplus · Accepted Answer

Since the fixed manufacturing overhead budget variance is favorable, it means that the actual fixed manufacturing overhead cost incurred is less than the budgeted fixed manufacturing overhead cost. Therefore, the total fixed manufacturing overhead cost applied to production should be equal to the budgeted fixed manufacturing overhead cost, which is $840,000. Budget variance = Actual fixed overhead - Budgeted fixed overhead
$42,000 F = $840,000 - Budgeted fixed overhead
-$42,000 = $840,000 - Budgeted fixed overhead
Budgeted fixed overhead = $840,000 + $42,000
Budgeted fixed overhead = $882,000
Fixed component of the predetermined overhead rate = $882,000 ÷ 21,000 MHs = $42 per MH
Fixed manufacturing overhead cost applied to production = 20,000 MHs × $42 per MH = $840,000

Ronda Manufacturing Corporation Uses a Standard Cost System with Machine-Hours