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 $900,000 comprised of $300,000 of variable costs and $600,000 of fixed costs. Byrd applies overhead on the basis of direct labor hours. During the current year, Byrd produced 72,700 putters, worked 82,300 direct labor hours, and incurred variable overhead costs of $130,860 and fixed overhead costs of $600,300.

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 $ $ Link to Text Link to Video

Compute the applied overhead for Byrd for the year. Overhead Applied $ Link to Text Link to Video

Compute the total overhead variance. Total Overhead Variance $

Answer 1

Solution:

Calculation of Predetermined Overhead Rate

As given in question, Byrd applies overhead on the basis of direct labor hours.

So, Predetermined Overhead Rate = Budgeted Overhead / Budgeted Direct Labor Hours

Here, Budgeted Direct Labour Hours = Total Production Capacity * Direct Labor Hour per unit

= 100,000 Unit * 1 Hour

= 100,000 Direct Labor Hour

Particulars	Variable Overhead	Fixed Overhead
Budgeted Overhead (A)	$300,000	$600,000
Budgeted Direct Labor Hours (B)	100,000 Hour	100,000 Hour
Pre-determined Overhead Rate (A/B)	$3 Per hour	$6 Per Hour

Calculation of Applied Overhead:

Applied Overhead = Budgeted Hours for Actual Production * Pre-determined Overhead Rate

Here, Budgeted Hours for Actual Production = Actual Production * Budgeted Direct Labor Hour per Unit

= 72,700 Units * 1 Direct Labor Hour

= 72,700 Direct Labour Hour

Particulars	Variable Overhead	Fixed Overhead	Total Overhead
Budgeted Hours for Actual Production (A)	72,700 Hour	72,700 Hour	72,700 Hour
Pre-determined Overhead Rate (B)	$3 Per Hour	$6 Per Hour	$9 Per Hour
Overhead Applied ( A * B)	$218,100	$436,200	$654,300

Calculation of Total Overhead Variance:

Overhead Variance = Applied Overhead - Actual Overhead

** If above formula gives positive result, it means variance is Favorable.

If above formula gives negative result, it means variance is Unfavorable.

Particulars	Variable Overhead	Fixed Overhead	Total
Applied Overhead (A)	$218,100	$436,200	$654,300
Actual Overhead (B)	$130,860	$600,300	$731,160
Overhead Variance ( A - B)	$87,240	($164,100)	($76,860)
	Favorable	Unfavorable	Unfavorable