Sedona Company set the following standard costs for one unit of its product for 2017.
Direct material (20 Ibs. @ $2.50 per Ib.) ........................... $ 50
Direct labor (10 hrs. @ $22.00 per hr.) .............................. 220
Factory variable overhead (10 hrs. @ $4.00 per hr.) ............... 40
Factory fixed overhead (10 hrs. @ $1.60 per hr.) .................. 16
Standard cost ............................................................ $326
The $5.60 ($4.00 + $1.60) total overhead rate per direct labor hour is based on an expected operating level equal to 75% of the factory's capacity of 50,000 units per month. The following monthly flexible budget information is also available.

During the current month, the company operated at 70% of capacity, employees worked 340,000 hours, and the following actual overhead costs were incurred.
Variable overhead costs ...................... $1,375,000
Fixed overhead costs ......................... 628,600
Total overhead costs ........................... $2,003,600
1. Show how the company computed its predetermined overhead application rate per hour for total overhead, variable overhead, and fixed overhead.
2. Compute the total variable and total fixed overhead variances and classify each as favorable or unfavorable.

Transcribed Image Text:

Operating Levels (% of capacity) 0% 35,000 Flexible Budget 3 Budgeted output (units) 4 Budgeted labor (standard hours) 5 Budgeted overhead (dollars) 6 Variable overhead 7 Fixed overhead 8 Total overhead 75% 80% 40,000 37,500 350,000 375,000 400,000 $1,400,000 $1,500,000 600,000 $2,100,000 $1,600,000 600,000 $2.200,000 600,000 $2,000,000$2