Exhibit 19-7 The following figures represent 100% capacity for Starr Manufacturing:
Starr Manufacturing normally produces at 100% capacity. During the month of October, the company started and completed 10,000 units of product, using variable manufacturing overhead costs of $20,000. The company used 6,400 direct labor hours in October instead of the 6,000 hours expected for the activity level achieved.
-Refer to Exhibit 19-7. Based on the information above, the standard variable manufacturing overhead cost in terms of actual direct labor hours is:

Question

Exhibit 19-7 The following figures represent 100% capacity for Starr Manufacturing:
 Starr Manufacturing normally produces at 100% capacity. During the month of October, the company started and completed 10,000 units of product, using variable manufacturing overhead costs of $20,000. The company used 6,400 direct labor hours in October instead of the 6,000 hours expected for the activity level achieved.
-Refer to Exhibit 19-7. Based on the information above, the standard variable manufacturing overhead cost in terms of actual direct labor hours is:

Quizplus · Accepted Answer

To find the standard variable manufacturing overhead cost per actual direct labor hour, we need to use the following formula: 
Standard variable overhead rate = Total variable overhead cost / Total standard hours allowed 
Total standard hours allowed = Expected direct labor hours * 100% capacity

Expected direct labor hours = 6,000 
100% capacity = 8,000 direct labor hours (as shown in Exhibit 19-7) 
Total standard hours allowed = 6,000 * (8,000 / 6,000) = 8,000

Standard variable overhead rate = $20,000 / 8,000 = $2.50 per standard hour

To find the standard variable overhead cost in terms of actual direct labor hours, we need to multiply the standard overhead rate by the actual direct labor hours used:

Standard variable overhead cost = Standard variable overhead rate * Actual direct labor hours 
= $2.50 * 6,400 
= $16,000

Therefore, the correct answer is B.

Exhibit 19-7 the Following Figures Represent 100% Capacity for Starr