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Sedona Company set the following standard costs for one unit of its product for 2017.

The $5.60 ($4.00 + $1.60) total overhead rate per direct labor hour is based on an expected operating level equal to 75% of the factory's capacity of 50,000 units per month. The following monthly flexible budget information is also available.

During the current month, the company operated at 70% of capacity, employees worked 340,000 hours, and the following actual overhead costs were incurred.

AH = Actual Hours
SH = Standard Hours
AVR = Actual Variable Rate
SVR = Standard Variable Rate
SFR = Standard Fixed Rate

Direct material (20 Ibs. @ $2.50 per Ib.) $ 50.00 Direct labor (10 hrs. @ $22.00 per hr.) 220.00 Factory variable overhead (10 hrs. @ $4.00 per hr.) 40.00 Factory fixed overhead (10 hrs. @ $1.60 per hr.) 16.00 Standard cost $ 326.00 (1) Compute the predetermined overhead application rate per hour for variable overhead, fixed overhead, and total overhead at 75% of Predetermine Rate Variable overhead costs Fixed overhead costs Total overhead costs 4.00 per DL hr 1.60 per DL hr 5.60 per DL hr (2) Compute the total variable and total fixed overhead variances and classify each as favorable or unfavorable At 70% of Operating Capacity Predetermined OH Standard DL Overhead Costs Actual Results Variance Fav./Unf Rate Hours Applied 350,000 1400,000 1,375,000$ 350,000 25,000 Favorable Variable overhead costs Fixed overhead costs Total overhead costs 4.00 1.60 5.60 628,600 $ 2,003,600 Unfavorable nfavorable

Explanation / Answer

2) Calculation of total variable and fixed overhead variance (Amts in $)

At 70% of  Operating Capacity Predetermined OH Rate (A) Standard DL Hours (B) Overhead Costs Applied (C = A*B) Actual Results (D) Variance (C - D) Fav./Unf. Variable Overhead Costs 4.00 350,000 1,400,000 1,375,000 25,000 Favorable Fixed Overhead Costs 1.60 350,000 560,000 628,600 (68,600) Unfavorable Total Overhead Costs 5.60 2,003,600 (43,600) Unfavorable

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