Problem: Overhead application rate (similar to Self-Study Problem 2) Bama Manufacturing Inc. uses a job order cost system and stan- dard costs. It manufactures one product, whose standard cost follows:
Materials, 10 yards @ $1.50 per yard....... $15
Direct labor, 2 hours @ $13.00 per hour.................. 26
Total factory overhead per unit (the ratio of variable costs 24 to fixed costs is 2 to 1) ......... 24
Total unit cost ..... $65
The standards are based on normal capacity of 2,700 direct labor hours. Actual activity for March follows:
Materials purchased, 13,500 yards @ $1.55 per yard $20,925
Materials used, 13,000 yards.........
Direct labor, 2,620 hours @ $13.50 per hour ............. 35,370
Total factory overhead, 1,300 units actually produced ... 30,500
Required:
1. Compute the variable and fixed factory overhead rates per unit.
2. Compute the variable and fixed overhead rates per direct labor hour.
3. Determine the total fixed factory overhead based on normal capacity.