Question

The standard cost card for the single product manufactured by Cutter, Inc., is given below:

Inputs	(1) Standard Quantity or Hours	(2) Standard Price or Rate			Standard Cost (1) × (2)
Direct materials	3.6 yards	$	3.00	per yard	$	10.80
Direct labor	0.7 hours	$	16.00	per hour		11.20
Variable overhead	0.7 hours	$	2.00	per hour		1.40
Fixed overhead	0.7 hours	$	5.00	per hour		3.50
Total standard cost per unit					$	26.90

Manufacturing overhead is applied to production on the basis of standard direct labor-hours. During the year, the company worked 8,460 hours and manufactured 11,800 units of product. Selected data relating to the company’s fixed manufacturing overhead cost for the year are shown below:

Actual Fixed Overhead			Budgeted Fixed Overhead			Fixed Overhead Applied to Work in Process
$40,000			?			? hours × $? per hour = $?
	Budget variance, $?			Volume variance, $3,300 F

Required:

1. What were the standard hours allowed for the year’s production?

2. What was the amount of budgeted fixed overhead cost for the year?

3. What was the fixed overhead budget variance for the year? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

4. What denominator activity level did the company use in setting the predetermined overhead rate for the year?

Answer 1

Solution 1:

standard hours allowed for the year’s production = 11800*0.70 = 8260 hours

Solution 2:

amount of budgeted fixed overhead cost for the year = Fixed overhead applied - Favorable volume variance

= (8260*$5) - $3,300 = $38,000

Solution 3:

fixed overhead budget variance = Budgeted fixed overhead - Actual fixed overhead = $38,000 - $40,000 = $2,000 U

solution 4:

Denominator activity level = $38,000 / $5 = 7600 hours