Byrd Company produces one product, a putter called GO-Putter. Byrd uses a standa
ID: 2417234 • Letter: B
Question
Byrd Company produces one product, a putter called GO-Putter. Byrd uses a standard cost system and determines that it should take one hour of direct labor to produce one GO-Putter. The normal production capacity for this putter is 130,000 units per year. The total budgeted overhead at normal capacity is $1,040,000 comprised of $390,000 of variable costs and $650,000 of fixed costs. Byrd applies overhead on the basis of direct labor hours.
During the current year, Byrd produced 75,500 putters, worked 96,400 direct labor hours, and incurred variable overhead costs of $125,632 and fixed overhead costs of $531,098.
Variable
Fixed
Byrd Company produces one product, a putter called GO-Putter. Byrd uses a standard cost system and determines that it should take one hour of direct labor to produce one GO-Putter. The normal production capacity for this putter is 130,000 units per year. The total budgeted overhead at normal capacity is $1,040,000 comprised of $390,000 of variable costs and $650,000 of fixed costs. Byrd applies overhead on the basis of direct labor hours.
During the current year, Byrd produced 75,500 putters, worked 96,400 direct labor hours, and incurred variable overhead costs of $125,632 and fixed overhead costs of $531,098.
Explanation / Answer
Solution.
Computetion of the predetermined variable overhead rate and the predetermined fixed overhead rate.
Basis :- Byrd applies overhead on the basis of direct labor hours
Total budgeted overhead at normal capacity is = $1,040,000
One hour of direct labor to produce one GO-Putter
So lBudgeted labor hour = 130,000 hour.
predetermined variable overhead rate = $390,000 / 130,000 = $3
predetermined fixed overhead rate = $650,000 / 130,000 = $5
2. Computation of the applied overhead for Byrd for the year.
Direct labor hours = 96,400 x $8 = $771,200.
3. Computation of the total overhead variance.
TOTAL OVERHEAD VARIANCE = Actual Factory Overhead - Standard Factory Overhead.
Actual Factory Overhead = $125,632 + $531,098. = $656,730
Standard Factory Overhead. = $96,400 x $8 = $771,200.
TOTAL OVERHEAD VARIANCE = $656,730 - $771,200 = $114,470
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