Question

At Eady Corporation, maintenance is a variable overhead cost that is based on machine-hours. The performance report for July showed that actual maintenance costs totaled $12,550 and that the associated rate variance was $390 unfavorable. If 6,400 machine-hours were actually worked during July, the standard maintenance cost per machine-hour was:

Answer 1

Answer:

$1.9 per MH

Explanation:

Since the associated rate variance is unfavorable, that amount must be subtracted from the actual maintenance cost in order to obtain the standard maintenance cost (SMC):

$SMC = \ 12,550 - \ 390\\SMC = \ 12,160$

During July, 6,400 machine-hours were actually worked, so the standard maintenance cost per machine-hour was:

$\frac{\ 12,160}{6,400} = \ 1.9$

The cost was $1.9 per MH