Shiplett Corporation Applies Overhead to Products Based on Machine-Hours

question 24

Essay

Shiplett Corporation applies overhead to products based on machine-hours. The denominator level of activity is 8,800 machine-hours. The budgeted fixed manufacturing overhead costs are $317,680. In March, the actual fixed manufacturing overhead costs were $314,300 and the standard machine-hours allowed for the actual output were 8,500 machine-hours.
Required:
a. Compute the budget variance for March. Show your work!
b. Compute the volume variance for March. Show your work!

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Definitions:

Sales Revenue

The income received by a company from its sales of goods or services before any expenses are deducted.

Working Capital

The measure of a company's short-term liquidity, determined by subtracting current liabilities from current assets.

Short-Run Liquidity

The ability of a company to meet its short-term financial obligations and operate in the near future without facing financial distress.

Current Assets

Assets that are expected to be converted into cash, sold, or consumed within one year or within the normal operating cycle of the business.