Question

# Exercise 23-20 Computation of volume and controllable overhead variances LO P3 World Company expects to operate...

Exercise 23-20 Computation of volume and controllable overhead variances LO P3 World Company expects to operate at 80% of its productive capacity of 50,000 units per month. At this planned level, the company expects to use 25,000 standard hours of direct labor. Overhead is allocated to products using a predetermined standard rate of 0.625 direct labor hours per unit. At the 80% capacity level, the total budgeted cost includes \$50,000 fixed overhead cost and \$275,000 variable overhead cost. In the current month, the company incurred \$305,000 actual overhead and 22,000 actual labor hours while producing 35,000 units. (1) Compute the overhead volume variance. (2) Compute the overhead controllable variance.

World Company's budget assumed the production of 40,000 units (80% of 50,000 units).

Standard = 0.625 direct labor hours per unit (25,000 hours / 40,000 units)

 Variable OH rate 275000/25000 11 per DLH Fixed OH rate 50000/25000 2 per DLH Total OH rate 3250000 13 per DLH

The standard hours to produce 35,000 units = 21,875 (35,000 units x 0.625 hours per unit.)

Total overhead Applied =\$13.00* 21,875 =\$284,375

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