8-20 Flexible Budget, Selection of Appropriate Activity Base, and Analysis of Variable- Overhead Variances The Selkirk Company

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8-20 Flexible Budget, Selection of Appropriate Activity Base, and Analysis of Variable-

Overhead Variances The Selkirk Company has produced 10,000 units of product. The standard direct-labor hours allowed (also called standard hours earned or standard hours worked) were 2 hours per unit, or a total of 20,000 hours. The actual direct-labor hours worked were 21,000. The standard direct-labor rate is $3 per hour. Actual direct-labor costs totaled $65,100. Variable overhead was divided into the following categories:

STANDARD COST INCURRED TYPE OF OVERHEAD ITEM BEHAVIOR PATTERN*

$14,700 Indirect labor—variable Seo 2,000 Supplies—variable 10 2,200 Repairs—variable 10 2,100 Power—variable LO

$21,000 Total variable overhead $1.00 7. Standard costs applied to production have sometimes been referred to as a function of outputs, whereas actual costs incurred have sometimes been called a function of inputs. Analyze the variances for direct labor and then comment on your analysis in relation to the outputs-inputs distinction and to the terminology distinction between standard hours worked and actual hours worked.®

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