Question

A company’s flexible budget for last month shows that actual indirect materials cost, an overhead variable cost, was $31,178, and that the rate variance for indirect materials cost was $2,261 unfavorable. The company uses machine hours as its cost-allocation base for allocating manufacturing overhead. During that month, the company worked 11,900 machine-hours. Budgeted activity for the month had been 12,200 machine-hours. What must have been the standard rate per machine-hour for indirect materials?

Answer 1

The right answer is "$2.43".

Step-by-step explanation:

The given values are:

Overhead material cost,

= $31,178

Rate variance (unfavorable),

= $2,261

Company worked,

= 11,900 hours

Budgeted activity,

= 12,200 hours

Now,

The budgeted material cost will be:

=
`Overhead \ material \ cost-Rate \ variance`

=
`31178-2261`

=
`28917` ($)

hence,

For indirect materials, the rate per machine hour will be:

=
`(Budgeted \ materials \ cost)/(Company \ worked \ hours)`

=
`(28917)/(11900)`

=
`2.43`