Madden Manufacturing, Inc., manufactures a single product and uses a standard cost system. The factory overhead is applied on the basis of direct labor hours. A condensed version of the company's ?exible budget follows:
Direct labor hours .................. 5,000 6,250 10,000 Factory overheadcosts: Variable costs .................... $10,000 $12,500 $20,000 Fixed costs ...................... 50,000 50,000 50,000 Total ............................ $60,000 $62,500 $70,000
The product requires 3 pounds of materials at a standard cost of $5 per pound and 2 hours of direct labor at a standard cost of $10 per hour. For the current year, the company planned to operate at the level of 6,250 direct labor hours and to produce 3,125 units of product. Actual production and costs for the year follow:
Number of units produced ...................................... 3,500 Actualdirect labor hoursworked ................................ 7,000 Actualvariable overheadcosts incurred .......................... $14,000 Actual?xed overheadcosts incurred ............................ $52,000