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A company uses a standard costing system. The production budget for year 1 was based on 200,000 units of output. Each unit requires two standard hours of manufacturing labor for completion. Total overhead was budgeted at 900K for the year, and the budgeted Fixed OH rate was $1.50 per direct manufacturing labor hour. Both variable and fixed overheads are allocated to the product based on direct manufacturing labor hours. The actual data for year 1 are as follows:
Actual Production in units = 198,000
Actual Direct Manufacturing Labor hours = 425,000
Actual Variable OH = 352,000
Actual Fixed OH = 575,000————————————————————————
The way I approached this problem was:Actual VOH — price var.— Flexible VOH — eff. var.— Budgeted VOH
352k………………………..297k………………………….300kWhere:
352k = given
297k = input*Actual Quantity*Standard rate = 2*198k*0.75
300k = 900k – 600k
0.75 is from 300k/400kMy answer (favorable of 3k) is not one of the answer options. What am I doing wrong here? I don’t understand looking at the explanation 🙁
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