Question

DTE Inc. uses direct labor hours as a basis for charging standard overhead to work in process. The annual standard overhead rate is based on budgeted variable overhead of $840,000 and budgeted fixed overhead at $700,000, and a budget of 150,000 hours to produce 50,000 units.

During the month of March, 4500 units were produced. Actual Fixed overhead was $52,000 and actual variable overhead was $26,000.

Determine the standard overhead cost per direct labor hour.

Compute the standard overhead cost per unit of product.

Compute the standard cost of the units produced in March.

Compute the total overhead variance for the month.

Using the two-variance method, compute the budget variance for the month.

Using the two-variance method, compute the volume variance for the month.

Answer 1

Solution:

Standard overhead cost per direct labor hour = Budgeted overhead / Budgeted DL hour

= ($840,000 + $700,000) / 150000 = $10.27 per DLH

Standard overhead cost per unit of product = Standard hour per unit * Overhead rate per DLH = (150000/50000) * $10.2666666 = $30.80 per unit

Standard cost of unit produced in march = 4500 * $30.80 = $138,600

Total overhead variance for the month = Overhead applied - Actual overhead

= $138,600 - ($52,000 + $26,000) = $60,600 favorable

budget variance for the month = Budgeted overhead for actual production - Actual overhead

= (4500*3*$5.60 + $700,000/12) - $78,000 = $55,933 F

Volume variance for the month = Fixed overhead applied - Budgeted fixed overhead

= (4500*3*$4.6666) - ($700,000/12) = $4,667 F