The standard cost card for the single product manufactured by Cutter, Inc., is g

Question

The standard cost card for the single product manufactured by Cutter, Inc., is given below:

Manufacturing overhead is applied to production on the basis of standard direct labor-hours. During the year, the company worked 8,760 hours and manufactured 10,700 units of product. Selected data relating to the company’s fixed manufacturing overhead cost for the year are shown below:

Required:

1. What were the standard hours allowed for the year’s production?

2. What was the amount of budgeted fixed overhead cost for the year?

3. What was the fixed overhead budget variance for the year? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

4. What denominator activity level did the company use in setting the predetermined overhead rate for the year?

Inputs (1)
Standard
Quantity
or Hours (2)
Standard
Price
or Rate Standard
Cost
(1) × (2) Direct materials 4.2 yards $ 5.00 per yard $ 21.00 Direct labor 0.8 hours $ 15.00 per hour 12.00 Variable overhead 0.8 hours $ 1.50 per hour 1.20 Fixed overhead 0.8 hours $ 5.00 per hour 4.00 Total standard cost per unit $ 38.20

Explanation / Answer

Given actual fixed overhead expenses = 42000

Fixed overhead volume variance =Fixed overhead rate per unit(actual output- budgeted output)

1800 = $4 (10700-Budgeted outpuT)

450 = 10700 -Budgeted output

Budgeted output = 10700-450

= 10250

1)Standard hours alllowed for year's production = 10250*0.8 =8200 hrs

2)Amount of budgeted fixed overhead cost for the year = 10250units * $4/unit =$41000

3)Fixed overhead budget variance = actual fixed overheads - budgeted fixed overheads = $42000-$41000 =1000U

4)The denominator activity level the company used in setting the predetermined overhead rate for the year =10250*0.8 =8200 direct labour hours

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