Question

Sedona Company set the following standard costs for one unit of its product for 2017.

               
Direct material (15 Ibs. @ $3.40 per Ib.)      $   51.00     
Direct labor (10 hrs. @ $9.70 per hr.)         97.00     
Factory variable overhead (10 hrs. @ $4.90 per hr.)         49.00     
Factory fixed overhead (10 hrs. @ $2.00 per hr.)         20.00     
Standard cost      $   217.00     

The $6.90 ($4.90 + $2.00) total overhead rate per direct labor hour is based on an expected operating level equal to 70% of the factory's capacity of 59,000 units per month. The following monthly flexible budget information is also available.

       Operating Levels (% of capacity)     
Flexible Budget         65%            70%            75%     
Budgeted output (units)         38,350            41,300            44,250     
Budgeted labor (standard hours)         383,500            413,000            442,500     
Budgeted overhead (dollars)                                      
Variable overhead      $   1,879,150         $   2,023,700         $   2,168,250     
Fixed overhead         826,000            826,000            826,000     
Total overhead      $   2,705,150         $   2,849,700         $   2,994,250     

During the current month, the company operated at 65% of capacity, employees worked 365,000 hours, and the following actual overhead costs were incurred.

               
Variable overhead costs      $   1,816,000     
Fixed overhead costs         899,050     
Total overhead costs      $   2,715,050     

AH = Actual Hours
SH = Standard Hours
AVR = Actual Variable Rate
SVR = Standard Variable Rate
SFR = Standard Fixed Rate

Answer 1

1. Complete the predetermined overhead application rate per hour for variable overhead, fixed overhead and total overhead at 70% of capacity.
	Predetermined OH Rate
Variable overhead costs	$4.90	per DL hr.
Fixed overhead costs	$              2.00	per DL hr.
Total overhead costs	$6.90	per DL hr.
2) Compute the total variable and total fixed overhead variances.
			-------At 65% of Operating Capacity--------
	Predetermined OH Rate	Standard DL Hours	Overhead Costs Applied	Actual Results	Variance	Fav./Unf.
Variable overhead costs	$              4.90	383,500	$ 1,879,150.00	$1,816,000.00	$     63,150.00	Favorable
Fixed overhead costs	$              1.60	383,500	$    613,600.00	$   899,050.00	$   285,450.00	Unfavorable
Total overhead costs	$              6.50		$ 2,492,750.00	$2,715,050.00	$   222,300.00	Unfavorable