Posted: July 12th, 2016

# Calculate all the relevant overhead variances for the department?

The Milling Department uses standard machine hours to allocate overhead to products. Budgeted volume for the year was 36,000 machine hours. A flexible budget is used to set the overhead rate. Fixed overhead is budgeted to be \$720,000 and variable overhead is estimated to be \$10 per machine hour.

During the year, two products are milled. The following table summarizes operations.
Product 1 Product 2
Units milled 10,500 12,000
Standard machine per unit 2 1
Actual machine hours used 23,000 13,000
Actual overhead during the year was \$1.1 million.

Calculate all the relevant overhead variances for the department, and write a memo that describes what each one means.

Sold \$1 million in bonds, 20 years at 4% with interest paid semi-annually. The proceeds from the bonds was \$975,000

Each of the following was suggested as a possible valuation basis for reporting the bond liability on the balance sheet.

1. \$975,625 (proceeds, plus 6 months straight line amortization)
2. \$1 million (face value)
3. \$1,780,000 (face value plus interest payments)

Evaluate each of the three suggested alternatives for reporting the bond liability in the balance sheet. Give arguments for and against each alternative, taking into consideration the investor and the reporting company.

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