Question

The standard fixed factory overhead rate is based on 100% capacity of 50,000 direct labor hours....

The standard fixed factory overhead rate is based on 100% capacity of 50,000 direct labor hours. The standard costs and the actual costs for factory overhead for the production of 8,000 units during the current month were as follows.

Standard: 40,000 hours at $3 $120,000
Actual: Factory overhead
(41,000 direct labor hours) 131,200

If there was a $9,000 unfavorable volume variance for December, what is the standard fixed factory overhead cost rate?

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Answer #1

Solution:

Total applied overhead = $120,000

Overhead volume variance = $9,000 U

Total budgeted overhead for 40000 hours = Total applied overhead + Overhead volume variance = $120,000 + $9,000 = $129,000

Budgeted overhead = Fixed overhead + Variable overhead

Budgeted overheat at 50000 direct labor hours = 50000*$3 = $150,000

Variable overhead cost per direct labor hour = ($150,000 - $129000) / (50000 - 40000) = $2.10 per hour

Therefore standard fixed factory overhead cost rate = $3 - $2.10 = $0.90 per direct labor hour

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