Acme Financial issues letters of credit to importers foroverseas purchases. The company charges a...

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Accounting

Acme Financial issues letters of credit to importers foroverseas purchases. The company charges a nonrefundable applicationfee of $4,000 and, on approval, an additional service fee of 2.0%of the amount of credit requested.
The company’s budget for the year just completed included fixedexpenses for office salaries and wages of $600,000, leasing officespace and equipment of $60,000, and utilities and other operatingexpenses of $10,000. In addition, the budget also included variableexpenses for supplies and other variable overhead costs of$1,000,000. The company estimated these variable overhead costs tobe $2,000 for each letter of credit approved and issued. Thecompany approves, on average, 75% of the applications itreceives.
During the year, the company received 600 requests and approved70% of them. The total variable overhead was 10.0% higher than thestandard amount applied; the total fixed expenses were 5.0% lowerthan the amount budgeted.
In addition to these expenses, the company paid a $270,000insurance premium for the letters of credit issued. The insurancepremium is 1.0% of the amount of credits issued in U.S. dollars.The actual amount of credit issued often differs from the amountrequested due to fluctuations in exchange rates and variations inthe amount shipped versus the amount ordered by importers. Thestrength of the dollar during the year decreased the insurancepremium by 10.0%.
Required:
1. Calculate (or determine) the following budgeted overheadcosts for the year:
(a) the variable overhead application rate (per letter of creditissued)
(b) the insurance cost percentage
(c) the fixed overhead application rate (per letter of creditissued)
2. Prepare an analysis of the overhead cost variances for theyear just completed and in so doing answer the followingquestions:
(a) What is the total overhead flexible-budget variance for theperiod?
(b) What is the overhead volume variance for the period?
(c) What is the total overhead cost variance for the year?
Indicate whether each of the above variances is favorable (F) orunfavorable (U).

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4.1 Ratings (500 Votes)

1 Budgeted Overhead OH for the year arrived at based onattached tablea Variable OH rate per letter of credit issued 2000b Insurance cost to total OH 15c Fixed OH Rate per See Answer

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In: AccountingAcme Financial issues letters of credit to importers foroverseas purchases. The company charges a nonrefundable...Acme Financial issues letters of credit to importers foroverseas purchases. The company charges a nonrefundable applicationfee of $4,000 and, on approval, an additional service fee of 2.0%of the amount of credit requested.The company’s budget for the year just completed included fixedexpenses for office salaries and wages of $600,000, leasing officespace and equipment of $60,000, and utilities and other operatingexpenses of $10,000. In addition, the budget also included variableexpenses for supplies and other variable overhead costs of$1,000,000. The company estimated these variable overhead costs tobe $2,000 for each letter of credit approved and issued. Thecompany approves, on average, 75% of the applications itreceives.During the year, the company received 600 requests and approved70% of them. The total variable overhead was 10.0% higher than thestandard amount applied; the total fixed expenses were 5.0% lowerthan the amount budgeted.In addition to these expenses, the company paid a $270,000insurance premium for the letters of credit issued. The insurancepremium is 1.0% of the amount of credits issued in U.S. dollars.The actual amount of credit issued often differs from the amountrequested due to fluctuations in exchange rates and variations inthe amount shipped versus the amount ordered by importers. Thestrength of the dollar during the year decreased the insurancepremium by 10.0%.Required:1. Calculate (or determine) the following budgeted overheadcosts for the year:(a) the variable overhead application rate (per letter of creditissued)(b) the insurance cost percentage(c) the fixed overhead application rate (per letter of creditissued)2. Prepare an analysis of the overhead cost variances for theyear just completed and in so doing answer the followingquestions:(a) What is the total overhead flexible-budget variance for theperiod?(b) What is the overhead volume variance for the period?(c) What is the total overhead cost variance for the year?Indicate whether each of the above variances is favorable (F) orunfavorable (U).