A Min Company operates at 80% capacity. At this level, they produce 1,000 units, total overhead costs are $15,000, and they predict they will use 10,000 direct labor hours.

 A Min Company operates at 80% capacity. At this level, they produce 1,000 units, total overhead costs are $15,000, and they predict they will use 10,000 direct labor hours.
 


Explanation
Knowledge Check 01
 
To determine the standard overhead rate per direct labor hour, divide the total overhead costs of $15,000 by the standard direct labor hours of 10,000 which equals $1.5.

 

Baylor Company has actual total overhead of $1,900. The standard overhead applied is $2,000. What is the overhead variance?
 
multiple choice
$100 Favorable Correct
$100 Unfavorable
$300 Favorable
$300 Unfavorable

Explanation
Knowledge Check 01
 
The overhead variance = Actual total overhead of $1,900 − Standard overhead applied of $2,000 = $100 Favorable. The variance is favorable because the actual amount was less than the amount applied. 

Kramer Company budgeted that it would operate at 80% capacity for the month producing 800 units of its product, AA. Each unit requires 2 direct labor hours. At the end of the month it realized that they produced 700 units and operated at 70% capacity. If the budgeted fixed overhead was $3,000, the standard fixed overhead was $2.00 per direct labor hour, what is the volume variance?
 
multiple choice
$100 Favorable
$100 Unfavorable
$200 Favorable
$200 Unfavorable Correct

Explanation
Knowledge Check 01
 
The volume variance equals budgeted fixed overhead of $3,000 − standard fixed overhead applied of (700 units × 2 direct labor hours × $2.00 per direct labor hour) $2,800 = $200 unfavorable. The variance is unfavorable because they operated at less than the predicted level.