World company expects to operate at 80% of its productive capacity of 55,000 uni

Question

World company expects to operate at 80% of its productive capacity of 55,000 units per month. At this planned level, the company expects to use 23,100 standard hours of direct labor. Overhead is allocated to products using a predetermined standard rate based on direct labor hours. At the 80% capacity level, the total budgeted cost includes $60,060 fixed overhead cost and $267.960 variable overhead cost. In the current month, the company incurred $342,000 actual overhead and 20,100 actual labor hours while producing 41.000 units Compute the overhead volume variance. (Round all your intermediate calculations to 2 decimal places.)

Explanation / Answer

Answer:

Budgeted DLH per unit = Budgeted production/ Budgeted labour hours

= 55000/23100 = 2.38 hours

Recovery rate of fixed OH = Budgeted fixed OH/ budgeted labour hours

= 60060/23100 = $2.60 per DLH

Required calculations:

1.Variable OH rate per DLH = Budgeted Variable OH cost/ Budgeted labour hours

= $267960/23100 hours = $11.60 per DLH

2. Standard DL hours = Actual production * Standard hours per unit

= 41000 units *2.38 hours = 97580 hours

3. Fixed OH applied = Standard hours * Fixed OH per DLH

= 97580 hours * $2.60 per hour = $253708

4. Fixed Overhead volume variance = Total fixed OH applied - Total budgeted fixed OH

= 253708 - 60060 = $193648 F

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.