World Company expects to operate at 90% of its productive capacity of 13,000 uni

Question

World Company expects to operate at 90% of its productive capacity of 13,000 units per month. At this planned level, the company expects to use 11,115 standard hours of direct labor. Overhead is allocated to products using a predetermined standard rate of 0.950 direct labor hours per unit. At the 90% capacity level, the total budgeted cost includes $22,230 fixed overhead cost and $111,150 variable overhead cost. In the current month, the company incurred $203,300 actual overhead and 10,875 actual labor hours while producing 17,000 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 17,000 units -------- Standard DL Hours Overhead costs applied Actual results Variance Fav./Unf. Variable overhead costs Fixed overhead costs Total overhead costs

Explanation / Answer

Compute the total overhead variance.

Standared DL Hours computation

Output under Planned Capacity =13000*90%=11700

Total Labor hour under Planned capacity=11115

Hence Standare Labor Hr per unit=11115/117500=.950

No of units actualy produced=17000

Standared hour required =17000*.950=16150

Variable overhead costs =Variable cost/Standared Hr =111150/11115 10.00 Fixed overhead costs =Fixed overhead cost/Standared Hr =111150/11115 2.00 Total overhead costs 12.00

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