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Fundamentals of Overhead Variances The Durant Company is installing an absorption standard-cost system and a flexible-overhead budget.

Fundamentals of Overhead Variances

The Durant Company is installing an absorption standard-cost system and a flexible-overhead budget. Standard costs have recently been developed for its only product and are as follows:

Direct materials 3 pounds @ $20 $60
Direct labor 2 hours @ $14 28
Variable overhead 2 hours @ $5 10
Fixed overhead ?
Standard cost per unit of finished product $ ?

Expected production activity is expressed as 7,500 standard direct-labor hours per month. Fixed overhead is expected to be $60,000 per month. The predetermined fixed-overhead rate for product costing is not changed from month to month.

1. Calculate the proper fixed-overhead rate per standard direct-labor hour and per unit.

2. Assume that 6,000 standard direct-labor hours are allowed for the output achieved during a given month. Actual variable overhead of $31,000 was incurred; actual fixed overhead amounted to $62,000. Calculate the
a. Fixed-overhead flexible-budget variance
b. Fixed-overhead production-volume variance
c. Variable-overhead flexible-budget variance

This question was asked on Apr 29, 2010.

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