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?

Solution:

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 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