World Company expects to operate at 90% of its productive capacity of 23,000 uni

Question

World Company expects to operate at 90% of its productive capacity of 23,000 units per month. At this planned level, the company expects to use 12,420 standard hours of direct labor. Overhead is allocated to products using a predetermined standard rate of 0.600 direct labor hours per unit. At the 90% capacity level, the total budgeted cost includes $37,260 fixed overhead cost and $99,360 variable overhead cost. In the current month, the company incurred $208,300 actual overhead and 11,970 actual labor hours while producing 30,500 units. (Do not round intermediate calculations. Round "OH costs per DL hour" to 2 decimal places.)

(1) Compute the predetermined standard overhead rate for total overhead. Predetermined OH rate Variable overhead costs Fixed overhead costs Total overhead costs (2) Compute the total overhead variance. --------Actual production 30,500 units -------- Standard DL Hours Overhead costs applied Actual results Variance Fav./Unf. Variable overhead costs Fixed overhead costs Total overhead costs

Explanation / Answer

Requirement 1 Variable overhead costs (99360/(23,000X0.6) 7.20 Fixed Overhead Costs (37,260/(23,000X0.6) 2.70 Total Overhead Costs (136,620/(23,000X0.6) 9.90 Requirement 2 Actual Production 30500 Units Standard DL Hours Overhead Cost applied Actual Results Variance Favourable/ Unfavourable Variable Overhead costs             18,300     1,31,760 Fixed Overhead Costs (30,000X0.6)        49,410 Total Overhead costs     1,81,170 2,08,300     27,130 Unfavourable

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