Eastern Company manufactures special electrical equipment and parts. The company uses a standard cost system with separate

Question:

Eastern Company manufactures special electrical equipment and parts. The company uses a standard cost system with separate standards established for each product. The transformer department manufactures a special transformer. This department measures production volume in terms of direct labor hours (DLHs) and uses a flexible-budget system to plan and control departmental overhead costs. Standard costs for the special transformer are determined annually in September for the coming year. The standard cost of a transformer at its DeCatur plant for the year just completed is $67 per unit, as shown here:

Direct materials
Iron	5	Sheets X	$2	$10
Copper	3	Spools X	$3	$9
Direct labor	4	Hours X	$7	$28
Variable overhead	4	Hours X	$3	$12
Fixed overhead	4	Hours X	$2	$8
Total				$67

Overhead rates were based on practical capacity of 4,000 DLHs per month. Variable overhead costs are expected to vary with the number of DLHs actually used. During October, the plant produced 800 transformers. This number was below expectations because a work stoppage occurred during labor contract negotiations. When the contract was settled, the department scheduled overtime in an attempt to reach expected production levels.

The following costs were incurred in October:

Practical Capacity (DLHs/month)				4,000
Transformers produced (output volume)				800

Direct Material
Iron	Purchased	5,000	sheets at	$2.00	/sheet and used	3,900	sheets
Copper	Purchased	2,200	spools at	$3.10	/spool and used	2,600	spools
Direct Labor
Regular time:	2,000	Hours at	$7.00	and	1,400	hours at	$7.20
Overtime:	600	of the	1,400		Total Premium	$2,160.00

(The total overtime premium of $2,160 is included in variable overhead in accordance with company
accounting pracitices.)
Factory Overhead
Variable	$12,000
Fixed	$8,800