Fun Unlimited Corp. produces a toy called the Challenge. Overhead is applied to products on the basis of direct labour-hours. The
company recently implemented a standard costing system to help control costs and has established the following standards for the
Challenge toys:
Direct materials: 6 microns per toy at $0.50 per micron
Direct labour: 1.3 hours per toy at $15 per hour
Variable manufacturing overhead: 1.3 hours per toy at $4 per hour
Fixed manufacturing overhead: 1.3 hours per toy at $6 per hour
During July, the company produced 3,000 Challenge toys. The fixed overhead expense budget for July was $24,180, with 4,030
direct labour-hours as the denominator level of activity. Production data for the month on the toys follow:
Direct materials: 25,000 microns were purchased at a cost of $0.48 per micron;
5,000 of these microns were still in inventory at the end of the month.
Direct labour: 4,000 direct labour-hours were worked, at a cost of $64,000.
Variable overhead: Actual cost in July was $17,000.
Fixed overhead: Actual cost in July was $25,000.
Required:
1. Compute the materials, labour, variable manufacturing overhead, and fixed manufacturing overhead variances.
2. Calculate total overapplied or underapplied overhead for July.
