Abba Company produces sails for boats. The Houston plant uses a standard costing

Question

Abba Company produces sails for boats. The Houston plant uses a standard costing system with the following standards and actuals.

Direct labor is the basis for applying variable and fixed overhead.

What is practical capacity using standard labor hours?

Standards     Direct Labor         Standard Rate $ 9         Standard Usage 0.55 hours Variable Overhead Standard Rate $ 8 December Data Budgeted Production for December 31,313 Budgeted Fixed Overhead for December $ 102,797     Number of Sails Produced 39,528     Direct Labor         Actual Usage 27,578 hours Actual Variable Overhead Costs $ 212,326     Actual Fixed Overhead Costs $ 167,584

Explanation / Answer

Practical capacity = Standard hours per belt *Budgeted production

      = .55* 31313

      = 17222.15 hours

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