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Main Company Problems

Main Company uses a standard cost system in which it applies manufacturing overhead to its product on the basis of standard direct labor-hours (DLHs). Below is the standard cost card for the product:

Direct materials, 5 feet at $4.00 per foot......................... $20.00
Direct labor, 2.0 DLHs at $10.00 per DLH......................... 20.00
Variable overhead, 3.0 DLHs at $2.00 per DLH............... 6.00
Fixed overhead, 3.0 DLHs at $8.00 per DLH................... 24.00
$70.00
Last year, the company produced 6,000 units of product using 17,000 direct labor-hours. The actual total fixed overhead cost for the year was $140,000 and the volume variance was $12,000, favorable.
Required:
a. Compute the total fixed overhead cost that was originally budgeted.
b. Compute the denominator activity figure that the company used in computing predetermined overhead rates

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STEP 1

We use the figures to compute (b) first.
We know that:
Volume variance = favorable units of production X fixed overhead.
Or 12,000 = favorable units of production X $24
So, the favorable units of production is ...

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