Pizzi, Inc. had the following fixed manufacturing overhead variances last year: Pizzi uses machine-hours as an activity base for overhead and used 48,000 machine-hours as the denominator activity level for the year. Total actual fixed manufacturing overhead was $150,000. The actual number of machine-hours incurred were 50,000. What were Pizzi's standard hours allowed for actual output?
A)40,000
B)42,000
C)50,400
D)52,500

Question

Pizzi, Inc. had the following fixed manufacturing overhead variances last year:  Pizzi uses machine-hours as an activity base for overhead and used 48,000 machine-hours as the denominator activity level for the year. Total actual fixed manufacturing overhead was $150,000. The actual number of machine-hours incurred were 50,000. What were Pizzi's standard hours allowed for actual output?
A)40,000 
B)42,000 
C)50,400 
D)52,500

Quizplus · Accepted Answer

To solve the problem, we need to use the formula:

Fixed Overhead Spending Variance = Actual Fixed Overhead - (Standard Fixed Overhead Rate x Standard Activity Hours)

We are given that:

Actual Fixed Overhead = $150,000
Denominator Activity Level = 48,000 machine-hours
Actual Activity Level = 50,000 machine-hours

First, we need to find the standard fixed overhead rate:

Budgeted Fixed Overhead / Denominator Activity Level = Standard Fixed Overhead Rate

$130,000 / 48,000 machine-hours = $2.7083 per machine-hour

Next, we can use the fixed overhead spending variance formula to solve for standard activity hours:

-$4,200 = $150,000 - ($2.7083 per machine-hour x Standard Activity Hours)

$2.7083 per machine-hour x Standard Activity Hours = $154,200

Standard Activity Hours = 50,400 machine-hours

Therefore, the standard hours allowed for actual output is 50,400 machine-hours, which corresponds to choice C.