Ballroom Balloons, Inc. uses a standard cost system in which manufacturing overhead is applied to units of product on the basis of direct labor-hours (DLHs). During August, the company actually used 6,100 direct labor-hours and produced 2,500 units of product. The standard cost card for one unit of product includes the following data for manufacturing overhead:
Variable overhead:2.5 DLHs @ $3.00 per DLH.
Fixed overhead:
To calculate the manufacturing overhead applied to the units of product, we need to determine the total variable overhead and total fixed overhead.
1. Variable overhead:
The standard cost card states that the variable overhead for one unit of product is 2.5 DLHs at $3.00 per DLH. Therefore, the variable overhead rate is $3.00 per DLH. Multiply this rate by the actual number of DLHs used to calculate the total variable overhead.
Total Variable Overhead = Variable Overhead Rate * Actual DLHs Used
In this case, the actual DLHs used were 6,100. Therefore:
Total Variable Overhead = $3.00 * 6,100 = $18,300
2. Fixed overhead:
The standard cost card does not mention the fixed overhead rate. To calculate the fixed overhead, we need additional information. This information could include the total fixed overhead budgeted for a particular period or the predetermined fixed overhead rate. Without this information, it is not possible to determine the fixed overhead.
Once you have the total variable overhead and fixed overhead values, you can add them together to find the total manufacturing overhead applied to the units of product.