Everett, Inc. budgeted $1,488,000 for total overhead. The standard variable overhead rate was $2 per direct labour hour, or $6 per unit, based on an anticipated activity level of 600,000 direct labour hours. During the year 220,000 units were produced. Fixed overhead costs incurred were $300,000. The variable overhead budget variance was $19,800 unfavourable, and the actual variable overhead rate was $2.10 per direct labour hour.
The standard fixed overhead rate per direct labour hour was:
A) $0.48
B) $0.90
C) $0.50
D) $0.96

Question

Quizplus · Accepted Answer

The standard fixed overhead rate per direct labour hour is calculated by dividing the total budgeted fixed overhead by the total anticipated direct labour hours. Given that the total overhead budgeted was $1,488,000 and the variable overhead was budgeted at $2 per direct labour hour for 600,000 hours (which totals $1,200,000 for variable overhead), the fixed overhead is the difference: $1,488,000 - $1,200,000 = $288,000. Dividing this by the anticipated activity level of 600,000 hours gives a rate of $0.48 per direct labour hour.