Standard overhead per direct labor hour based on normal monthly capacity of 30,0

Question

Standard overhead per direct labor hour based on

normal monthly capacity of 30,000 hours

Fixed ($270,000 / 30,000) $9

Variable (660,000 / 30,000) 22 $31

Direct Labor Hours actually worked 28,000

Actual Overhead cost incurred

including $270,000 fixed costs $824,000

(a) Compute the amount of overhead applied to Work-in-Process during month. $_______________

(b) Compute the total manufacturing overhead budgeted based on hours worked during month. $_______________

(c) Compute the overhead spending variance for month. Indicate whether favorable (F) or unfavorable (U). $_______________

(d) Compute the overhead volume variance for month. Indicate whether favorable (F) or unfavorable (U). $_______________

Explanation / Answer

(a) The amount of overhead applied to Work-in-Process during month. $ 106000 (working note-1) (b) The total manufacturing overhead budgeted based on hours worked during month. $ 868000 ( working note -2) (c) The overhead spending variance for month. Indicate whether favorable (F) or unfavorable (U). $ 44000 (F) (working note-3) (d) The overhead volume variance for month. Indicate whether favorable (F) or unfavorable (U). $ 62000 (F) (working note-4) Working note-1 Calculation of amount applied to WIP Standard variable OH=660000 Standard fixe OH=270000 Total OH= 660000+270000=930000 Actual total OH=824000 Amount applied to wip=930000-824000=106000 Working note-2 Total manufacturing budgeted OH on hour worked= (9+22)*28000hr=868000 Working note 3 Overhead spending variance=badgeted overhed-actual overhead budgeted OH= standard rate OH per hr * actual hr/budgetedhr =(22+9)*28000=868000 Overhead spending variance=*(868000-824000)=44000(F) Working note 4 Overhead volume variance= standard rate per hr(standard oh-actual OH) = 22+9(30000-28000)=62000(F)

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