Byrd Company produces one product, a putter called GO-Putter. Byrd uses a standa

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 120,000 units per year. The total budgeted overhead at normal capacity is $720,000 comprised of $240,000 of variable costs and $480,000 of fixed costs. Byrd applies overhead on the basis of direct labor hours.

During the current year, Byrd produced 88,900 putters, worked 93,200 direct labor hours, and incurred variable overhead costs of $123,749 and fixed overhead costs of $460,741.

Explanation / Answer

Direct Labour hours required to produce 1 unit = 1 hour

Direct Labour hours required to produce 120000 units = 120000 hours

Budgeted Variable cost = $240000

Predetermined Variable Overhead Rate = Budgeted Variable cost / Budgeted Labour hours

= 240000 / 120000

= $2 per hour

Budgeted Fixed Overheads = $480000

Predetermined Fixed Overhead Rate = Budgeted Fixed cost / Budgeted Labour hours

= 480000 / 120000

= $4 per hour

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