Question

World Company expects to operate at 70% of its productive capacity of 20,000 units per month. At this planned level, the company expects to use 11,550 standard hours of direct labor. Overhead is allocated to products using a predetermined standard rate of 0.825 direct labor hour per unit. At the 70% capacity level, the total budgeted cost includes $23,100 fixed overhead cost and $138,600 variable overhead cost. In the current month, the company incurred $135,860 actual overhead and 7180 actual labor hours while producing 11,200 units. (Indicate the effect of each variance by selecting for favorable, unfavorable, and no variance. 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. Standard DL Hours ...Actual production 11,200 units Overhead costs Actual results Variance applied Fav./Unf. Variable overhead costs Fixed overhead costs Total overhead costs

Answer 1

14 B 1 1) 2 Predetermined Overhead Rate 3 Variable Overhead Costs 12 (138600/11550) 4 Fixed Overhead Costs 2 (23100/11550) 5 Total Overhead Costs 6 72 8 Actual Production = 44600 Units. Standard Direct Overhead costs Favourable/ 9 Labor Hours(NOTE 1) applied Actual results Variance (Unfavourable) 10 Variable Overhead Costs 9240 110880 11 Fixed Overhead Costs 92401 18480 12 Total Overhead Costs 129360 135860 -6500 (Unfavourable) 13 14 (NOTE 1):- Standard Direct Labor Hours = (11550 / 20000 * 70 %) *11200 15 (11550 / 14000) * 11200 16 0.825 * 11200 17 9240 Hours. 18 19 Conclusion:- Total Overhead Variance = $ 6500 (Unfavourable). 20 21