World Company expects to operate at 70% of its productive capacity of 21,000 uni

Question

World Company expects to operate at 70% of its productive capacity of 21,000 units per month. At this planned level, the company expects to use 14,700 standard hours of direct labor. Overhead is allocated to products using a predetermined standard rate of 1.000 direct labor hours per unit. At the 70% capacity level, the total budgeted cost includes $44,100 fixed overhead cost and $279,300 variable overhead cost. In the current month, the company incurred $600,800 actual overhead and 14,400 actual labor hours while producing 26,900 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 26,900 units- Standard Overhead Actual Variance Fav./Unf DL Hours costs applied results Variable overhead costs Fixed overhead costs Total overhead costs

Explanation / Answer

(1) Compute the predetermined standad overhead rate for total overhead:

Current Capacity = 21,000*70% = 14,700

No. of units produced per hour = 14,700/14,700= 1 unit/hour

Hence, Revised standard labour hours wrt actual units produced = 26900/1=26,900 hours

Predetermined

Standard Rate

Predetermined OH rate Calculation Variable Overhead Costs $19.00 =$44,100/14,700 Fixed Overhead Costs $3.00 =$2,79,300/14,700 Total Overhead Costs $22.00 =$19+$3

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