World Company expects to operate at 80% of its productive capacity of 50,000 units per month. At this planned level, the company expects to use 25,000 standard hours of direct labor. Overhead is allocated to products using a predetermined standard rate of 0.625 direct labor hour per unit. At the 80% capacity level, the total budgeted cost includes $50,000 fixed overhead cost and $275,000 variable overhead cost. In the current month, the company incurred $305,000 actual overhead and 22,000 actual labor hours while producing 35,000 units. 1. Compute the predetermined standard overhead rate for total overhead. 2. Compute the total overhead variance.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
World Company expects to operate at 80% of its productive capacity of 50,000 units per month. At this
planned level, the company expects to use 25,000 standard hours of direct labor. Overhead is allocated to
products using a predetermined standard rate of 0.625 direct labor hour per unit. At the 80% capacity
level, the total budgeted cost includes $50,000 fixed overhead cost and $275,000 variable overhead cost.
In the current month, the company incurred $305,000 actual overhead and 22,000 actual labor hours while
producing 35,000 units.
1. Compute the predetermined standard overhead rate for total overhead.
2. Compute the total overhead variance.
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