Question

Byrd Company produces one product, a putter called GO-Putter. Byrd uses a standard cost system and determines that it should take one hour of direct labor to produce one GO-Putter. The normal production capacity for this putter is 100,000 units per year. The total budgeted overhead at normal capacity is $850,000 comprised of $250,000 of variable costs and $600,000 of fixed costs. Byrd applies overhead on the basis of direct labor hours.

During the current year, Byrd produced 95,000 putters, worked 94,000 direct labor hours, and incurred variable overhead costs of $256,000 and fixed overhead costs of $600,000.

1) Predetermined Overhead Rate: a) Variable and b) Fixed

2) Overhead Applied

3) Total Overhead Variances: a) $ b) F or U?

Answer 1

1. Predetermined Overhead Rate

a. Variable OH Rate

= Variable Overhead at normal capacity/ Normal Capacity

= $250,000/ 100,000 units = $2.5 per unit

b.Fixed OH Rate

= Fixed Overhead at normal capacity/ Normal Capacity

= $600,000/ 100,000 units = $6 per unit

2.Overhead Applied

= Standard direct labour hours * Predetermined OH Rate

= 95,000 units * $8.5 = $807,500

Here,

Standard Direct Labor for manufacturing 950,000 units = 100,000*1 = 95,000 Hours

Total Predetermined OH Rate = Variable OH Rate + Fixed OH Rate = $2.5 + $6 = $8.5 per unit

3.Total Overhead Variance

a. $

= Actual Overhead - Standard Overhead

= $856,000 - $807,500

= $48,500

Here,

Actual Overhead = $256,000 + $600,000 = $856,000

b.F or U

=Unfavourable (U) as Actual Overhead > Stanard Overhead