(Appendix 10A) The Chuba Corporation uses a standard cost system in which manufacturing overhead is applied on the basis of standard direct labor-hours (DLHs). During December, the company actually used 7,200 direct labor-hours and made 1,900 units of finished product. The standard cost card for one unit of product includes the following data concerning manufacturing overhead:
Variable overhead: 4 DLHs @ $5.25 per DLH
Fixed overhead: 4 DLHs @ $2.00 per DLH
For December, the company incurred $16,550 in fixed manufacturing overhead costs and recorded an $800 unfavorable volume variance.
-The denominator activity level in direct labor-hours used by Chuba in setting the predetermined overhead rate was:
A) 7,600 hours
B) 7,800 hours
C) 8,000 hours
D) 7,200 hours

Question

Quizplus · Accepted Answer

Volume variance = Fixed component of the predetermined overhead rate x (Denominator hours - Standard hours allowed for the actual output)
$800 U = $2.00 per DLH × [Denominator hours - (4.0 DLHs per unit × 1,900 units)]
$800 = $2.00 per DLH × [Denominator hours - (4.0 DLHs per unit × 1,900 units)]
$800 = $2.00 per DLH × [Denominator hours - (7,600 DLHs)]
$800 = ($2.00 per DLH × Denominator hours) - $15,200
$2.00 per DLH × Denominator hours = $15,200 + $800
$2.00 per DLH × Denominator hours = $16,000
Denominator hours = $16,000 ÷ $2.00 per DLH = 8,000 DLHs

(Appendix 10A) the Chuba Corporation Uses a Standard Cost System