a company has the budget for manufacturing overhead based on direct labor hours.

Question

a company has the budget for manufacturing overhead based on direct labor hours. budgeting at 10,000 direct labor hours are as follows.          Variable costs= 160000

                        Fixed Costs =    80,000

                        Tottal OH cost   240,000

1)at an activity level of 8000 direct labor hours, the flexible budget would show the budgeted amount for total overhead costs as:

2) the Company operated at 8000 direct labor hours, and incurred a cost of 230,000. The resulting variance would be:

Please show work so i can figure out how to solve problem in the future. Thanks!

Explanation / Answer

VARIABLE OVERHEAD COST PER DIRECT LABOR = 160000/10000

=16 PER DIRECT LABOR HOUR

FIXED OVERHEAD COST = 80000

1] At an activity level of 8000 direct labor hours, the flexible budget would show the budgeted amount for total overhead costs as:

= 8000*16 + 80000

=208000

2] The Company operated at 8000 direct labor hours, and incurred a cost of 230,000. The resulting variance would be:

RESULTING VARIANCE = BUDGETED COST

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