Crawford Company's standard fixed overhead cost is $6 per direct labor hour based on budgeted fixed costs of $600,000. The standard allows 1 direct labor hours per unit. During 2011, Crawford produced 110,000 units of product, incurred $630,000 of fixed overhead costs, and recorded 212,000 actual hours of direct labor. What is the activity level on which Crawford based its fixed overhead rate?
A) 110,000 direct labor hours
B) 105,000 direct labor hours
C) 100,000 direct labor hours
D) 50,000 direct labor hours

Question

Quizplus · Accepted Answer

The activity level on which the fixed overhead rate is based can be calculated using the formula:

Fixed Overhead Rate = Budgeted Fixed Overhead Cost / Budgeted Activity Level

Substituting the given values, we get:

$6 per direct labor hour = $600,000 / Budgeted Activity Level

Therefore, the budgeted activity level is:

Budgeted Activity Level = $600,000 / ($6 per direct labor hour) = 100,000 direct labor hours

Since the fixed overhead rate was based on a budgeted activity level of 100,000 direct labor hours, the correct answer is C.

Crawford Company's Standard Fixed Overhead Cost Is $6 Per Direct