Platt Company produces one product, a putter called PAR-putter. Platt uses a sta
ID: 2380629 • Letter: P
Question
Platt Company produces one product, a putter called PAR-putter. Platt uses a standard cost system and determines that it should take one hour of direct labor to produce one PAR-putter. The normal production capacity for this putter is 100,000 units per year. The total budgeted overhead at normal capacity is $600,000 comprised of $200,000 of variable costs and $400,000 of fixed costs. Platt applies overhead on the basis of direct labor hours.
During the current year, Platt produced 85,000 putters, worked 89,000 direct labor hours, and incurred variable overhead costs of $180,000 and fixed overhead costs of $400,000.
Instructions
(a) Compute the predetermined variable overhead rate and the predetermined fixed overhead rate.
(b) Compute the overhead controllable variance.
(c) Compute the overhead volume variance.
Explanation / Answer
Prescott Manufacturing manufactures widgets for distribution. The standard costs for the manufacture of widgets follow:
Standard Costs Actual Costs
Direct materials 3 lbs. per widget at 31,000 lbs. at $34
$35 per pound per pound
Direct labor 2.5 hours per widget 22,500 hours at
at $11 per hour $11.80 per hour
Factory overhead Variable cost, $24/widget $241,500 variable cost
Fixed cost, $40/widget $381,250 fixed cost