Question

During March 2019, Virginia Bay Corporation recorded $275,000 of costs related to factory overhead. Virginia Bay's overhead application rate is based on direct labor hours. The preset formula for overhead application estimated that $277,000 would be incurred, and 9,000 direct labor hours would be worked.  During March, 11,000 hours were actually worked. Use this information to determine the standard overhead rate. (round & enter any final dollar answers to the nearest cent):

Answer 1

FORMULA

BUDGETED OVERHEAD RATE= BUDGETED OVERHEAD COST/ BUDGETED LABOUR HOUR

STANDARD OVERHEAD RATE= BUDGETED OVERHEAD COST/ ACTUAL LABOUR HOUR INCURRED

ACTUAL OVERHEAD RATE=ACTUAL OVERHEAD COST/ACTUAL LABOUR HOUR INCURRED

IN THE PRESENT CASE,

BUDGETED OVERHEAD COST=$277000

BUDGETED LABOUR HOUR=9000 LABOUR HOUR

ACTUAL LABOUR HOUR INCURRED=11000 LABOUR HOUR

BUDGETED OVERHEAD COST=$275000

BUDGETED OVERHEAD RATE=277000/9000=30.7777

STANDARD OVERHEAD RATE=277000/11000=25.1818

ACTUAL OVERHEAD RATE=275000/11000=25

SO, IN THE PRESENT CASE STANDARD OVERHEAD RATE IS 25.1818