Reference no: EM133160322
Question - Actual/Normal/Standard Costing - Fast Finance is a drive-in financial consulting business, where customers park in the parking lot and employees come by on roller-skates to give them financial advice.
For the month of January, Fast Finance estimates that they will receive 900 customers. The following table summarized their budgeted costs for January:
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Standards
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Direct Labor Cost
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50 $ / hr
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Total Variable Overhead Cost
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$11,250
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Total Fixed Overhead Cost
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$19,800
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Number of Customers
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900
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Total Direct Labor Hours
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1,125 hrs
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At the end of January, Fast Finance had incurred the following actual costs:
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Actuals
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Direct Labor Cost
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$48,000
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Total Variable Overhead Cost
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$9,600
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Total Fixed Overhead Cost
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$20,000
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Number of Customers
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960
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Total Direct Labor Hours
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960 hrs
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Fast Finance uses a full-absorption, normal costing system, and allocates their Variable and Fixed overhead on the basis of number of customers. Fast Finance charges their customers a flat rate per session, and as a result, considers the 'units' for their costing system to be customers.
Required -
1. What is the Standard Amount (SA) for Variable Overhead (and Fixed Overhead, incidentally)?
2. What is the Standard Price (SP) of Variable Overhead?
3. What is the Standard Price (SP) of Fixed Overhead?
4. What is the total cost of sales using full absorption, Normal costing?
5. What is the total cost of sales using full absorption, Actual costing?
6. What is the difference between the Total Normal Variable Overhead and the Total Actual Variable Overhead (calculate Actual - Normal)?
7. Suppose that Fast Finance is curious about their cost driver for Variable Overhead. What would be the Standard Price (SP) for Variable Overhead if they instead allocated Variable Overhead on the basis of Direct Labor Hours?
8. What would be the Standard Amount (SA) for Variable Overhead if, again, Fast Finance allocated Variable Overhead on the basis of Direct Labor Hours?
9. Again, if Fast Finance allocated Variable Overhead on the basis of Direct Labor Hours, what would be the difference between the Total Normal Variable Overhead and the Total Actual Variable Overhead (calculate Actual - Normal)?
10. Given your answer to the above questions, what is the 'right' driver for Variable Overhead: customers or direct labor hours?