Hanks Company Uses a Standard Cost System and Applies Manufacturing

question 70

Essay

Hanks Company uses a standard cost system and applies manufacturing overhead to products on the basis of machine hours. The following information is available for the year just ended:
Standard variable-overhead rate per machine hour: $2.50
Standard fixed-overhead rate per machine hour: $5.00
Planned activity during the period: 30,000 machine hours
Actual production: 10,700 finished units
Production standard: Three machine hours per unit
Actual variable overhead: $86,200
Actual total overhead: $225,500
Actual machine hours worked: 35,100
Required:
A. Calculate the budgeted fixed overhead for the year.
B. Did Hanks spend more or less than anticipated for fixed overhead? How much?
C. Was variable overhead under- or overapplied during the year? By how much?
D. Was Hanks efficient in its use of machine hours? Briefly explain.
E. Would the company's efficiency or inefficiency in the use of machine hours have any effect on Hanks' overhead variances? If "yes," which one(s)?

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Definitions:

Market Segments

Subsets of a market made up of people or organizations with one or more characteristics that cause them to demand similar product and/or services based on qualities of those products such as prices or function.

Product Prices

The amount of money required to purchase a good or service, often influenced by factors such as production costs, competition, and demand.

Narrow Range

A situation where variations or differences within data points, options, or outcomes are minimal or significantly limited.

Blue Ocean Strategy

A business strategy that focuses on creating new market spaces (blue oceans) where there is no competition, as opposed to competing in existing industries (red oceans).