Reference: 11-13
The Upton Company employs a standard costing system in which variable overhead is assigned to production on the basis of direct labour hours. Data for the month of February include the following:
Variable manufacturing overhead cost incurred: $48,700
Total variable overhead variance: $300 F
Standard hours allowed for actual production: 7,000
Actual direct labour hours worked: 6,840
-The standard variable overhead rate per direct labour hour is:
A)$6.91.
B)$7.00.
C)$7.12.
D)$6.95.

Question

Quizplus · Accepted Answer

The formula for calculating the standard variable overhead rate per direct labour hour is:

Standard variable overhead rate per direct labour hour = Total standard variable overhead cost / Total standard direct labour hours

Since the only given information is the standard hours allowed for actual production, we need to calculate the total standard variable overhead cost.

Total variable overhead variance = Actual variable overhead - (Standard variable overhead rate x Actual direct labour hours)

$300 F = $48,700 - (Standard variable overhead rate x 6,840)

Solving for Standard variable overhead rate:

Standard variable overhead rate = ($48,700 - $300 F) / 6,840 = $7.00 per direct labour hour

Therefore, the best choice is B) $7.00.

Reference: 11-13 The Upton Company Employs a Standard Costing System in Which