Sedona Company set the following standard costs for one unit of its product for
ID: 2492524 • Letter: S
Question
Sedona Company set the following standard costs for one unit of its product for 2015 Direct material (20 lbs. $2.50 per lb.) Direct labor (10 hrs. $8.00 per hr.) Factory variable overhead (10 hrs. @ $4.00 per hr.) Factory fixed overhead (10 hrs. $1.60 per hr.) $ 50 80 40 16 Standard cost $ 186 The $5.60 ($4.00 1 $1.60) total overhead rate per direct labor hour is based on an expected operating level equal to 75% of the factory's capacity of 50,000 units per month. The following monthly flexible budget information is also available Operating Levels (% of capacity) Flexible Budget Budgeted output (units) Budgeted labor (standard hours) Budgeted overhead (dollars) 70% 35,000 350,000 80% 40,000 400,000 75% 37,500 375,000 $1,400,000 $1,500,000 $ 1,600,000 Variable overhead Fixed overhead 600,000 600,000 600,000 lotal overhead $2,000,000 $2,100,000 2,200,000 During the current month, the company operated at 70% of capacity, employees worked 340,000 hours, and the following actual overhead costs were incurred. (Do not round intermediate calculations. Round "OH costs per hour" to 2 decimal places.) Variable overhead costs Fixed overhead costs $1,375,000 628,600 Total overhead costs $2,003,600Explanation / Answer
Answer to Part 1
The predetermined overhead application rate per hour for variable, fixed overhead and total overhead at 75% of capacity is:
Predetermined Overhead Rate
Variable Overhead cost
4
Fixed Overhead Cost
1.6
Total Overhead cost
5.6
Note: Fixed and Variable Ovrehead will be same at all level of Production
Answer to Part 2:
At 70% of Operating Capacity
(a)
Standard DL Hours (b)
Overhead Costs applied
(a * b) = c
Actual results
(Given above)= d
Variance
(c-d)
Fav/Unfav
Variable Overhead Cost
4.00
350,000
1,400,000
1,375,000
25,000
Favourable
Fixed overhead Cost
1.60
350,000
560,000
628,000
68,000
Unfavourable
Total Overhead Cost
5.60
1,960,000
2,003,600
43,600
Unfavourable
Predetermined Overhead Rate
Variable Overhead cost
4
Fixed Overhead Cost
1.6
Total Overhead cost
5.6