Sonic Company set the following standard costs for one unit of its product for 2011.
|
Direct material (20 Ibs. @ $2.50 per Ib.) |
$50.00 |
|
Direct labor (15 hrs. @ $8.00 per hr.) |
120 |
|
Factory variable overhead (15 hrs. @ $2.50 per hr.) |
37.5 |
|
Factory fixed overhead (15 hrs. @ $0.50 per hr.) |
7.5 |
|
Standard cost |
$215.00 |
The $3.00 ($2.50 + $0.50) 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) |
|||
|
70% |
75% |
80% |
|
|
Budgeted output (units) |
35,000 |
37,500 |
40,000 |
|
Budgeted labor (standard hours) |
525,000 |
562,500 |
600,000 |
|
Budgeted overhead (dollars) |
|
|
|
|
Variable overhead |
$1,312,500 |
$1,406,250 |
$1,500,000 |
|
Fixed overhead |
281,250 |
281,250 |
281,250 |
|
Total overhead |
$1,593,750 |
$1,687,500 |
$1,781,250 |
During the current month, the company operated at 70% of capacity, employees worked 500,000 hours, and the following actual overhead costs were incurred.
|
Variable overhead costs |
$1,267,500 |
|
Fixed overhead costs |
285,000 |
|
Total overhead costs |
$1,552,500 |
(1) Show how the company computed its predetermined overhead application rate per hour for total overhead, variable overhead, and fixed overhead. (2) Compute the variable and fixed overhead variances.