(Appendix 11A)The Claus Corporation makes and sells a single product and uses standard costing.During January, the company actually used 8, 700 direct labor-hours (DLHs)and produced 3, 000 units of product.The standard cost card for one unit of product includes the following: Variable factory overhead: 3.0 DLHs @ $4.00 per DLH.
Fixed factory overhead: 3.0 DLHs @ $3.50 per DLH.
For January, the company incurred $22, 000 of actual fixed manufacturing overhead costs and recorded a $875 favorable volume variance.
The denominator level of activity in direct labor-hours (DLHs)used by Claus in setting the predetermined overhead rate for January is:
A)9, 500 DLHs
B)9, 250 DLHs
C)8, 750 DLHs
D)10, 500 DLHs

Question

Quizplus · Accepted Answer

Volume variance = Fixed component of the predetermined overhead rate × (Denominator hours - Standard hours allowed for the actual output)
$875 F = $3.50 per DLH × [Denominator hours - (3.0 DLHs per unit × 3, 000 units)]
-$875 = $3.50 per DLH × [Denominator hours - (3.0 DLHs per unit × 3, 000 units)]
-$875 = $3.50 per DLH × [Denominator hours - (9, 000 DLHs)]
-$875 = ($3.50 per DLH × Denominator hours)- $31, 500
$3.50 per DLH × Denominator hours = $31, 500 - $875
$3.50 per DLH × Denominator hours = $30, 625
Denominator hours = $30, 625 ÷ $3.50 per DLH = 8, 750 DLHs

(Appendix 11A)The Claus Corporation Makes and Sells a Single Product