Question

Byrd Company produces one product, a putter called GO-Putter. Byrd uses a standard cost system and determines that it should take one hour of direct labor to produce one GO-Putter. The normal production capacity for this putter is 100,000 units per year. The total budgeted overhead at normal capacity is $ 500,000 comprised of $ 200,000 of variable costs and $ 300,000 of fixed costs. Byrd applies overhead on the basis of direct labor hours.

During the current year, Byrd produced 70,000 putters, worked 80,000 direct labor hours, and incurred variable overhead costs of $ 70,000 and fixed overhead costs of $ 300,000 .
Required:
1. Compute the predetermined variable overhead rate and the predetermined fixed overhead rate.

Answer 1

Fixed OAR= $3 per hour

Variable OAR = $2 per hour

Step-by-step explanation:

Predetermined overhead absorption rate is used to charged overheads to cost unit.

The rate is computed as follows

Overhead absorption rate (OAR) =Budgeted Overheads / Buffeted labour hours

Budgeted labour hours = Standard hour/unit × budgeted units/(normal capacity)

Fixed OAR

= $300,000/(1 × 100,000) hours

= $3 per hour

Variable OAR

= $200,000/(1× 100,000) hours

= $2 per hour