Question

World Company expects to operate at 90% of its productive capacity of 30,000 units per month. At this planned level, the company expects to use 10,800 standard hours of direct labor. Overhead is allocated to products using a predetermined standard rate of 0.400 direct labor hours per unit. At the 90% capacity level, the total budgeted cost includes $21,600 fixed overhead cost and $194,400 variable overhead cost. In the current month, the company incurred $120,700 actual overhead and 6,380 actual labor hours while producing 14,400 units. (Do not round intermediate calculations. Round "OH costs per DL hour" to 2 decimal places.) (1) Compute the predetermined standard overhead rate for total overhead. Predetermined OH rate Variable overhead costs Fixed overhead costs Total overhead costs (2) Compute the total overhead variance. -------Actual production 14,400 units - Standard Overhead DL Hours costs applied Actual results Variance Fav./Unf. Variable overhead costs Fixed overhead costs Total overhead costs

Answer 1

ANSWER :

(1)

Predetermined overhead rate = Estimated overhead / Estimated direct labor hours

Variable overhead rate = $194,400 / 10800

= $18 per hour

Fixed overhead rate = $21,600 / 10800

= $2 per hour

Total overhead rate = $18 + $2

= $20 per hour

(2)

Computation of total overhead variance
			Actual production 14400 units
Particulars	Overhead rate	Standard DL hours	Overhead cost applied	Actual results	Variance	Fav. / Unfav.
Variable overhead costs	$18.00	5760	$103,680.00
Fixed overhead costs	$2.00	5760	$11,520.00
Total overhead costs	$20.00	5760	$115,200.00	$120,700.00	$5,500.00	Unfav.

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