Question - Inspired Ltd manufactures spurs. Factory overhead is applied to the production of spurs using a predetermined rate based on budgeted direct labour hours. Budgeted cost of production (for 30,000 units) for the year to 30 June 2015 was:
Direct materials $ 225,000
Direct labour (6,000 hours) 75,000
Fixed factory overhead 39,000
Variable factory overhead 30,000
Actual factory overhead incurred in the year to 30 June 2015 was $72,000. Actual direct labour hours were 6,100.
Required:
(a) Calculate the factory overhead application rate (per direct labour hour) for the year.
(b) Calculate the total amount of factory overhead for the year applied to the production of spurs.
(c) Analyse under or over-applied overhead into two variances. Your answer must name the two variances, and indicate whether they are favourable/unfavourable.