Question

World Company expects to operate at 80% of its productive capacity of 50,000 units per month. At this planned level, the company expects to use 25,000 standard hours of direct labor. Overhead is allocated to products using a predetermined standard rate of 0.625 direct labor hour per unit. At the 80% capacity level, the total budgeted cost includes $50,000 fixed overhead cost and $275,000 variable overhead cost. In the current month, the company incurred $305,000 actual overhead and 22,000 actual labor hours while producing 35,000 units. (Indicate the effect of each variance by selecting for favorable, unfavorable, and no variance. Do not round your intermediate calculations.)

Answer 1

Answer:

Following are the solution to this question:

Explanation:

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                              Applied to fixed overhead

Overhead fixed by DL hr.         $=\frac{50000}{25000}\ \ \ \ \ \ \ \ \ \ \ =2$

DL hours standard   $=35000 \times \frac{25000}{50000 \times 80\%} \ \ \ \ \ \ \ \ \ \ \ \ =21875$

Application of fixed overhead $= 21875 \times 2.0 \ \ \ \ \ \ \ \ \ \ = 43750$

                                 Variance in volume

Application of total fixed overhead  $= \ 43,750$

Fixed total estimates Superfast  $=\ 50,000$  

Variance of volume  $= \ 6,250$