Question

8.

[The following information applies to the questions displayed below.]

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

Direct material (20 Ibs. @ $3.20 per Ib.)		$	64.00
Direct labor (10 hrs. @ $8.30 per hr.)			83.00
Variable overhead (10 hrs. @ $4.70 per hr.)			47.00
Fixed overhead (10 hrs. @ $2.30 per hr.)			23.00
Total standard cost		$	217.00

The $7.00 ($4.70 + $2.30) total overhead rate per direct labor hour is based on an expected operating level equal to 60% of the factory's capacity of 57,000 units per month. The following monthly flexible budget information is also available.

		Operating Levels (% of capacity)
Flexible Budget			55%				60%				65%
Budgeted output (units)			31,350				34,200				37,050
Budgeted labor (standard hours)			313,500				342,000				370,500
Budgeted overhead (dollars)
Variable overhead		$	1,473,450			$	1,607,400			$	1,741,350
Fixed overhead			786,600				786,600				786,600
Total overhead		$	2,260,050			$	2,394,000			$	2,527,950

During the current month, the company operated at 55% of capacity, employees worked 295,000 hours, and the following actual overhead costs were incurred.

Variable overhead costs		$	1,411,000
Fixed overhead costs			858,050
Total overhead costs		$	2,269,050

(1) Compute the predetermined overhead application rate per hour for total overhead, variable overhead, and fixed overhead.
	Predetermined OH Rate
Variable overhead costs
Fixed overhead costs
Total overhead costs
(2) Compute the total variable and total fixed overhead variances and classify each as favorable or unfavorable. (Indicate the effect of each variance by selecting for favorable, unfavorable, and no variance. Round "Rate per hour" answers to 2 decimal places.)
			--------At 55% of Operating Capacity--------
		Standard DL Hours	Overhead Costs Applied	Actual Results	Variance	Fav./Unf.
Variable overhead costs
Fixed overhead costs
Total overhead costs

Answer 1

Predetermined overhead rate = Budgeted overhead cost / budgeted labor hours

Variable overhead rate = $1607400/342000 = $4.7 per hour

Fixed overhead rate = $786600/342000 = $2.3 per hour

Total overhead rate = $2394000 /342000 = $7 per hour

		At 65% of operating capacity
Particulars		Standard DL hours	Overhead cost applied	Actual results	Variance	Fav./ Unf.
Variable overhead cost		313500	$1,473,450.00	$1,411,000.00	$62,450.00	Fav.
Fixed overhead cost			$721,050.00	$858,050.00	$137,000.00	Unf.
Total overhead cost			$2,194,500.00	$2,269,050.00	$74,550.00	Unf.