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.

1. Compute the applied overhead for Byrd for the year.

2. Compute the total overhead variance.

Explanation / Answer

Normal Production Capacity 120000 Variable Overheads 240000 Fixed Overheads 480000 Applied Overhead 123749+460741 584490/88900 6.574691 Applied Overhead is $ 6.58 per unit Total Overhead Variance = 720000-584490 135510 Total Overhead Variance is $ 135510 Favourable

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