Nova Corporation Produces a Single Product and Uses a Standard

question 63

Essay

Nova Corporation produces a single product and uses a standard cost system to help control costs. Overhead is applied to production on the basis of standard machine-hours. According to the company's flexible budget, the following overhead costs should be incurred at an activity level of 18,000 machine-hours (the denominator activity level chosen for the current year): During the current year, the following operating results were recorded: At the end of the year, the company's Manufacturing Overhead account showed total debits for actual overhead costs of $145,100 and total credits of $136,000 for overhead applied. The difference $(9,100) represents under-applied overhead, the cause of which management would like to know.
Required:
a. Compute the predetermined overhead rate that would have been used during the year, showing separately the variable and fixed components of the rate.
b. Show how the $136,000 of overhead actually applied was computed.
c. Analyze the $9,100 under-applied overhead figure in terms of the variable overhead rate and efficiency variances and the fixed manufacturing overhead budget and volume variances.

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Definitions:

Keratinocyte

A predominant cell type found in the outermost layer of the skin, responsible for producing keratin, a protein that contributes to skin, hair, and nail strength.

Dendritic Cell

A type of immune cell with a key role in initiating and regulating the immune response, capable of presenting antigens to T cells.

Reticular Layer

The component of the dermis beneath the epidermis, consisting of collagen and elastin fibers that give skin its resilience and flexibility.

Dense Irregular Connective Tissue

A type of connective tissue with collagen fibers randomly arranged, providing strength and resistance in multiple directions.