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In: Accounting

Bluecap Co. uses a standard cost system and flexible budgets for control purposes. The following budgeted...

Bluecap Co. uses a standard cost system and flexible budgets for control purposes. The following budgeted information pertains to 2019: Denominator volume—number of units 8,000 Denominator volume—percent of capacity 80%Denominator volume—standard direct labor hours (DLHs) 24,000 Budgeted variable factory overhead cost at denominator volume$103,200 Total standard factory overhead rate per DLH$15.10 During 2019, Bluecap worked 28,000 DLHs and manufactured 9,600 units. The actual factory overhead cost for the year was $14,000 greater than the flexible budget amount for the units produced, of which $6,000 was due to fixed factory overhead. In preparing a budget for 2020 Bluecap decided to raise the level of operation to 90% of capacity (a level it considers to be "practical capacity"), to manufacture 9,000 units at a budgeted total of 27,000 DLHs.The total overhead variance in 2019 for Bluecap Co., to the nearest whole dollar, was:

Multiple Choice$17,280 favorable.$37,840 favorable.$15,040 favorable.$37,840 unfavorable.$14,000 unfavorable.

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Expert Solution

Budgeted Variable Overhead cost per hour = Budgeted Variable Overhead Cost / Budgeted DLH

= 103,200 / 24,000 DLH = $4.30 per DLH

Budgeted Fixed Overhead rate per hour = Budgeted Total Overhead cost - Budgeted Variable Overhead cost

= 15.10 - 4.30 = $10.80 per DLH

Budgeted Fixed Overhead = Budgeted Fixed Overhead per Labor Hour * Budgeted Labor Hours

= 10.80 * 24,000 hours = $259,200

Budgeted Hours for 1 unit = 24,000 DLH / 8,000 Units = 3 DLH per unit

Budgeted Hours for actual Production = 9,600*3 DLH = 28,800 DLH

Recovered Fixed Overheads = Budgeted Hours for actual production * Budgeted Overhead cost per hour

= 28,800 hours * $10.80 = $311,040

Fixed Overhead Volume Variance = Recovered Fixed Overheads - Budgeted Fixed Overheads

= 311,040 - 259,200 = $51,840 F

Total Overhead Variance = Fixed Overhead Volume Variance - Actual Overhead cost exceeding flexible overhead limits

= 51,840 - 14,000 = $37,840 Favourable.


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