Question

Exercise 21-19 Computation of total overhead rate and total overhead variance LO P3 World Company expects to operate at 80% of its productive capacity of 50,000 units per month. At this planned level, the company expects to use 25,000 standard hours of direct labor. Overhead is allocated to products using a predetermined standard rate of 0.625 direct labor hours per unit. At the 80% capacity level, the total budgeted cost includes $50,000 fixed overhead cost and $275,000 variable overhead cost. In the current month, the company incurred $305,000 actual overhead and 22,000 actual labor hours while producing 35,000 units. (Do not round your intermediate calculations.)

Exercise 21-19 Computation of total overhead rate and total overhead variance LO P3 World Company expects to operate at 80% of its productive capacity of 50,000 units per month. At this planned level, the company expects to use 25,000 standard hours of direct labor. Overhead is allocated to products using a predetermined standard rate of 0.625 direct labor hours per unit. At the 80% capacity level, the total budgeted cost includes $50,000 fixed overhead cost and $275,000 variable overhead cost. In the current month, the company incurred $305,000 actual overhead and 22,000 actual labor hours while producing 35,000 units. (Do not round your intermediate calculations.) (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 35,000 units ------ Standard DL Hours Overhead Costs Applied Actual Results Variance Fav./Unf. Variable overhead costs Fixed overhead costs Total overhead costs

Answer 1

(1) Compute the Pre determined standard overhead rate for total overhead: Variable overhead costs Fixed overhead costs Total overhead costs Pre determined overhead rate 11.00 Per DL Hr 2.00 Per DL Hr 13.00 Per DL Hr (2) Compute the Total Overhead Variance : Variable overhead costs Fixed overhead costs Total overhead costs Pre determined overhead rate Standard DL hours 11.00 2.00 13.00 the Actual Production 35,000 units Overhead costs Actual results Variance Fav./Unf. 21875 $ 240,625.00 21875 $ 43,750.00 $ 284,375.00 $ 305,000.00 $ 20,625.00 Unfavourable Working note : Budgeted costs Variable overhead costs Fixed overhead costs Total overhead costs Standard hours 275,000.00 25000 hours 50,000.00 25000 hours 325,000.00 Pre determined overhead rate $ 11.00 $ 2.00 $ 13.00 Total actual overhead Applied overhead(13 per hour*21875) Total overhead variance 305,000.00 284,375.00 20,625.00 note : standard dl hours - 35000hours * 0.625 - 21875 hrs