Problem: Kwikeze Company set the following standard costs for one unit of its product.
Direct materials ((3.0 Ibs. @ $5.0 per Ib.) $ 15.00
Direct labor (1.7 hrs. @ $14.0 per hr.) 23.80
Overhead (1.7 hrs. @ $18.50 per hr.) 31.45
Total standard cost $ 70.25
The predetermined overhead rate ($18.50 per direct labor hour) is based on an expected volume of 75% of the factory's capacity of 20,000 units per month. Following are the company's budgeted overhead costs per month at the 75% level.
Overhead Budget (75% Capacity)
Variable overhead costs
Indirect materials $ 15,000
Indirect labor 75,000
Power 15,000
Repairs and maintenance 30,000
Total variable overhead costs $ 135,000
Fixed overhead costs
Depreciation - building 23,000
Depreciation - machinery 73,000
Taxes and insurance 20,000
Supervision 220,750
Total fixed overhead costs 336,750
Total overhead costs $ 471,750
The company incurred the following actual costs when it operated at 75% of capacity in October.
Direct materials (46,000 Ibs. @ $5.20 per lb.) $ 239,200
Direct labor (31,000 hrs. @ $14.40 per hr.) 446,400
Overhead costs
Indirect materials $ 43,750
Indirect labor 176,750
Power 17,250
Repairs and maintenance 34,500
Depreciation - building 23,000
Depreciation - machinery 98,550
Taxes and insurance 18,000
Supervision 220,750 632,550
Total costs $ 1,318,150