Question

SCG makes wall units. For the year, the following details have been budgeted. Output, 10,000 units; factory overheads $1,250,000, of which 60% is variable. Each wall unit should take 2.5 hours of direct labor to produce. SCG produced 9,500 units with 24,000 DLH used and $1,175,000 actual overhead was incurred. Overhead is allocated based on direct labor hours (DLH). What is SCG's total overhead absorbed? $1,200,000 $1,187,500 $1,175,000 $1,250,000

Answer 1

Budgeted details:

Total overhead = $1,250,000

Variable overhead = $1,250,000 × 60% = $750,000

Fixed overhead = $1,250,000 × (100% - 60%) = $1,250,000 × 40% = $500,000

Labor hours = Output × Labor hours per unit = 10,000 × 2.5 = 25,000

Variable overhead absorption rate = Budgeted variable overhead / Budgeted labor hours

                                                       = $750,000 / 25,000

                                                       = $30

Fixed overhead absorption rate = Budgeted fixed overhead / Budgeted labor hours

                                                       = $500,000 / 25,000

                                                       = $20

Actual details:

Variable overhead absorbed = Variable overhead absorption rate × Actual labor hours

        = $30 × 24,000

        = $720,000

Fixed overhead absorbed = Fixed overhead absorption rate × Actual labor hours

      = $20 × 24,000 = $480,000

Total overhead absorbed = Actual variable overhead absorbed + Actual fixed overhead absorbed

                                                = $720,000 + $480,000

                                                = $1,200,000

Answer: 1^st option