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The variable factory overhead rate is $5 per direct labour hour and 8,000 units are produced, each taking one direct labour hour. What is the budgeted variable factory overhead?
A$40,000
B$50,000
C$56,000
D$96,000
Answer & Solution
Correct answer: A. $40,000
1. Budgeted variable overhead uses the standard hours for the units actually produced, not normal capacity.
2. 8,000 units at one hour each gives 8,000 standard hours.
3. 8,000 hours times $5 per hour gives $40,000.
4. $50,000 is the variable overhead budgeted at the 10,000 hour normal capacity, which is a different volume.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 8.4 Factory Overhead Variances_
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