Dustin Sports uses a standard cost system in which manufacturing overhead (MOH)
ID: 2359205 • Letter: D
Question
Dustin Sports uses a standard cost system in which manufacturing overhead (MOH) is applied to units of product on the basis of standard direct labor hours (DLH). The company's total budgeted variable and fixed manufacturing overhead costs at the denominator level of activity are $20,000 variable overhead and $30,000 fixed overhead. The combined predetermined overhead rate, including both fixed and variable components is $2.50 per direct labor hour. The standards call for two (2) direct labor hours per unit of product manufactured. Last year the company's actual production (and sales) was 11,500 units of product and they used (actual) 22,000 direct labor hours. Actual costs were $22,500 variable overhead and $31,000 fixed overhead. Compute each of the following-SHOW YOUR WORK Denominator level of activity: Standard hours allowed for actual output: Variable overhead spending variance: Variable overhead efficiency variance: Fixed overhead budget variance: Fixed overhead volume variance:Explanation / Answer
Total overhead = $50000 Combined predetrmined overhead = $2.50 So Budgeted direct labor hours must be 50000/2.5 = 20000 hours Budgeted production = 20000/2 = 10000 units Standard rate for variable overhead = 20000/20000 = $1 per labor hour Standard rate for Fixed overhead = 30000/20000 = $1.50 per labor hour Standard hours allowed for actual output = 11500 x 2 = 23000 hours Variable overhead spending variance = 22000 x 1 - 22500 = $500U Variable overhead efficiency variance = 11500 x 2 x 1 - 22000 x 1 = $1000F Fixed overhead budget variance = 30000 - 31000 = $1000U Fixed overhead volume variance = 11500 x 2 x 1.5 - 30000 = $4500F Hope this helps!
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