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Chapter 23: 9SE (page 1307)

Computing standard overhead allocation rates

The following information relates to Morgan, Inc.’s overhead costs for the month:

Static budget variable overhead

\(7,800

Static budget fixed overhead

\)3,900

Static budget direct labor hours

1,300 hours

Static budget number of units

5,200 units

Morgan allocates manufacturing overhead to production based on standard direct labor hours. Compute the standard variable overhead allocation rate and the standard fixed overhead allocation rate.

Short Answer

Expert verified

Standard variable overhead allocation rate:$6 per direct labor hour.

Standard fixed overhead allocation rate:$3 per direct labor hour.

Step by step solution

01

Definition of Direct Labor Cost

The cost incurred for all the employees directly attached to the production of the goods and services is known as direct labor cost. This cost depends upon the direct labor hours.

02

Standard variable overhead allocation rate

Standardvariableoverheadallocationrate=StaticbudgetvariableoverheadStaticbudgetdirectlaborhour=$7,8001,300hours=$6perdirectlaborhour

03

Standard fixed overhead allocation rate

Standardfixedoverheadallocationrate=StaticbudgetfixedoveheadStaticbudgetdirectlaborhour=$3,9001300hours=$3perdirectlaborhour

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Most popular questions from this chapter

Computing overhead variances

Refer to the Morgan, Inc. data in Short Exercise S23­9. Last month, Morgan reported the following actual results: actual variable overhead, \(10,800; actual fixed overhead, \)2,770; actual production of 7,000 units at 0.20 direct labor hours per unit. The standard direct labor time is 0.25 direct labor hours per unit (1,300 static direct labor hours / 5,200 static units).

Requirements

1. Compute the overhead variances for the month: variable overhead cost variance, variable overhead efficiency variance, fixed overhead cost variance, and fixed overhead volume variance.

2. Explain why the variances are favorable or unfavorable.

Martin, Inc. manufactures lead crystal glasses. The standard direct labor time is 0.5 hours per glass, at a cost of \(18 per hour. The actual results for one month’s production of 6,500 glasses were 0.2 hours per glass, at a cost of \)11 per hour. Calculate the direct labor cost variance and the direct labor efficiency variance.

Question:Top managers of Marshall Industries predicted 2018 sales of 14,800 units of its product at a unit price of \(9.50. Actual sales for the year were 14,600 units at \)12.00 each. Variable costs were budgeted at \(2.00 per unit, and actual variable costs were \)2.10 per unit. Actual fixed costs of \(48,000 exceeded budgeted fixed costs by \)4,000.

Prepare Marshall’s flexible budget performance report. What variance contributed most to the year’s favorable results? What caused this variance?

Headset manufactures headphone cases. During September 2018, the company produced 106,000 cases and recorded the following cost data:

Standard Cost Information

Quantity

Cost

Direct Materials

2 parts

\( 0.16 per part

Direct Labor

0.02 hours

8.00 per hour

Variable Manufacturing Overhead

0.02 hours

11.00 per hour

Fixed Manufacturing Overhead (\)30,720 for static budget volume of 96,000 units and 1,920 hours, or \(16 per hour)

Actual Information

Direct Materials (209,000 parts @ \)0.21 per part) \( 43,890

Direct Labor(1,620 hours @ \)8.10 per hour) 13,122

Variable Manufacturing Overhead 9,000

Fixed Manufacturing Overhead 30,000

Requirements

1. Compute the cost and efficiency variances for direct materials and direct labor.

2.For manufacturing overhead, compute the variable overhead cost and efficiency variances and the fixed overhead cost and volume variances.

3. Headset’s management used better­quality materials during September. Discuss the trade­off between the two direct material variances.

Question:Give the general formulas for determining cost and efficiency variances.
See all solutions

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