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.
2. Compute and interpret the following.
a. Variable overhead spending and efficiency variances.
b. Fixed overhead spending and volume variances.
c. Controllable variance.