Reference no: EM132544124

Question - Inspired Ltd manufactures spurs. Organisation policy requires Factory overhead to be applied to the production of spurs using a predetermined rate based on budgeted direct labour hours. Budgeted cost of production (for 30,000 units) for the year to 30 June 2015 was:

Direct materials $225,000

Direct labour (6,000 hours) 75,000

Fixed factory overhead 39,000

Variable factory overhead 30,000

Actual factory overhead incurred in the year to 30 June 2015 was $72,000. Actual direct labour hours were 6,100.

Required -

a) Calculate the factory overhead application rate (per direct labour hour) for the year.

b) Calculate the total amount of factory overhead for the year applied to the production of spurs.

c) Analyse under or over-applied overhead into two variances.

d) Two variances and indicate whether they are favourable/unfavourable.