Question: Sonic Company set the following standard costs for one unit of its product for 2011.
Direct material (20 Ibs. @ $2.50 per Ib.) . . . . . . . . . . . . . . . . . . . $ 50.00
Direct labor (15 hrs. @ $8.00 per hr.) . . . . . . . . . . . . . . . . . . . . . 120.00
Factory variable overhead (15 hrs. @ $2.50 per hr.) . . . . . . . . . . 37.50
Factory fixed overhead (15 hrs. @ $0.50 per hr.) . . . . . . . . . . . . 7.50
Standard cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $215.00
The $3.00 ($2.50 1 $0.50) total overhead rate per direct labor hour is based on an expected operating level equal to 75% of the factory's capacity of 50,000 units per month. The following monthly flexible budget information is also available.
During the current month, the company operated at 70% of capacity, employees worked 500,000 hours, and the following actual overhead costs were incurred.
Variable overhead costs . . . . . . . . $1,267,500
Fixed overhead costs . . . . . . . . . . 285,000
Total overhead costs . . . . . . . . . . . $1,552,500