Question

Byrd Company produces one product, a putter called GO-Putter. Byrd uses a standard cost system and determines that it should take one hour of direct labor to produce one GO-Putter. The normal production capacity for this putter is 100,000 units per year. The total budgeted overhead at normal capacity is $1,100,000 comprised of $400,000 of variable costs and $700,000 of fixed costs. Byrd applies overhead on the basis of direct labor hours. During the current year, Byrd produced 71,800 putters, worked 99,000 direct labor hours, and incurred variable overhead costs of $197,450 and fixed overhead costs of $734,800. Compute the predetermined variable overhead rate and the predetermined fixed overhead rate. (Round answers to 2 decimal places, e.g. 2.75.) Variable Fixed Predetermined Overhead Rate $ $ Compute the applied overhead for Byrd for the year. Overhead Applied $ Compute the total overhead variance. Total Overhead Variance $

Answer 1

Answer:

Total Overhead Variance $156750 Favorable

Explanation:

Given Data

Byrd Company

Normal production capacity 100,000 units per year

Direct Labor Hours at normal capacity = 100,000

Total budgeted overhead at normal capacity is $1,100,000

Variable costs $400,000

Fixed costs$700,000

Actual Production 71,800 putters

Actual Direct Labor Hours 99,000

Actual Variable Overheads $ 197450

Actual Fixed Overhead Costs $ 734,800

Formulae And Calculations

Predetermined Variable Overhead Rate = Variable Costs / Direct Labor Hours

Predetermined Variable Overhead Rate = $400,000 / $100,000 = $ 4 per hour

Predetermined Fixed Overhead Rate = Fixed Costs / Direct Labor Hours

                                          =$700,000 / $100,000 = $ 7 per hour

Applied Overhead = Applied Variable Costs + Applied Fixed Costs

                     = $ 4*99,000+ $ 7 *99,000=  $ 396,000 + $ 693,000=

Applied Overhead =$ 1089,000

Total Overhead Variance =  Actual Overhead - Overhead Applied

Total Overhead Variance =$ 197450+ $ 734,800-$ 1089,000

                         =932250-$ 1089,000= $156750 Favorable

It is favorable because actual is less than applied.