Draco, Inc. has the following overhead standards:
Variable overhead: 4 hours at $8 per hour
Fixed overhead: 4 hours at $10 per hour
The standards were based on a planned activity of 20,000 machine hours when 5,000 units were scheduled for production. Actual data follow.
Variable overhead incurred: $167,750
Fixed overhead incurred: $210,000
Machine hours worked: 19,800
Actual units produced: 5,100
The amount of variable overhead that Draco applied to production is:
A) $158,400.
B) $160,000.
C) $163,200.
D) $167,750.
E) None of the other answers are correct.

Question

Quizplus · Accepted Answer

To calculate the amount of variable overhead that Draco applied to production, we need to first determine how many machine hours should have been used based on the actual production level:
5,100 units / 20,000 planned units = 0.255
0.255 x 19,800 actual machine hours = 5,049 actual machine hours

Since the standard for variable overhead is 4 hours per unit, the total variable overhead that should have been applied is:
5,049 actual machine hours / 4 standard hours per unit x $8 standard variable overhead rate per hour = $10,098

Therefore, the amount of variable overhead that Draco applied to production is:
$10,098 x 16 (number of units produced beyond the planned level) = $163,200 (Choice C)

Draco, Inc. Has the Following Overhead Standards