Company makes a single product and apples overhead on the basis of direct labor

Question

Company makes a single product and apples overhead on the basis of direct labor hours. The company's condensed flexible budget for manufacturing overhead is given below: Direct Labor Hours 24,000 30,000 36,000 Variable Overhead Costs $48,000 $60,000 $72,000 Fixed Overhead Costs $180,000 $180,000 $180,000 Total Overhead Costs $228,000 $240,000 $252,000 The company's product requires 4 feet of direct material that has standard cost of $3 per foot. The product requires 1.5 hours of direct labor time. The standard labor rate is $12 per hour. During the year, the company planned to operate at a denominator activity level of 30,000 direct labor hours and to produce 20,000 units of product. Actual activity and costs for the year were as follows: Number of units produced 22,000 Actual direct labor hours worked 35,000 Actual variable overhead costs $63,000 Actual food overhead costs $181,000 What was the predetermined overhead raw for the year? Fixed component ________ Variable component ________ Complete the following Manufacturing Overhead T-account for the year: Was overhead over or under applied for the year? ________ What was the variable overhead spending variance? ________ F U What was the volume variance? ________ F U Suppose the company had chosen 36,000 direct labor hours as the denominator activity rather than 30,000 hours. Which, if any, of the variances would have changed?

Explanation / Answer

sandard materials required for oneunit of production 4 feet standard cost per feet $3 per feet Standard production 20000 units standard materials required to produce 20000 units 20000*4=80000 units standard labor hrs required to produce one unit 1.5 hrs standard cost per hour $12 per hour Actual units produced 22000 units Actual materials used 22000*4 88000 units Actual labor hours worked to produce 22000 units 35000 labor hrs Standard material cost on 80000 units$3 per unit $240,000 standard labor cost on 20000 units production 20000*1.5*12 $360,000 Total cost $600,000 The overhead is allocated on the basis of direct labor hours a) Actual variable overhead cost $63,000 direct labor hours worked 35000 predetermined rate for varialble cost=63000/35000 1.8 predetermined rate for fixed cost=181000/35000 5.17 b) overheads applied =30000*6.97 $209,100 overheads incurred $244,000 Underapplied of overheads $34,900 c) Variable overheads spending variance Actual hours worked(Actal overhead rate-standard overhead rate Actual hours worked 35000 Actual overhead rate $6.97 standard overhead rate(181000/30000) $6.03 35000(6.97-6.03) $32900U d)volme variance Fixed overhead rate*(normal capacity hrs-Standard capacity hours) Normal capacity hrs 35000 standard capacity hrs 30000 fixed overhead rate=181000/35000 5.17 VOLUME VARIANCE=5.17(35000-30000) $25850U

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