When analyzing the total variable overhead cost variance into both spending and efficiency variances, it is often assumed that direct labour hours is the sole cost driver.

1.Explain if direct labour costs could ever be a better cost driver of variable overhead costs than direct labour hours.

2.How is the standard variable overhead rate different from the standard labour rate in variance analysis?

CLAW Corporation is a manufacturer of industrial equipment, located in Toronto, Ontario. CLAW has a standard costing system based on direct labour hours (DLHs) as the measure of activity. Data from the company's flexible budget for manufacturing overhead are given below:

Denominator Level of Activity

9,000 DLHs

Overhead Costs at the Denominator Activity Level:

Variable Overhead Cost

$90,700

Fixed Overhead Cost

$102,800

The following data pertains to operations for the most recent period:

Actual Hours

7,800 DLHs

Standard Hours Allowed for the Actual Output

7,765 DLHs

Actual Total Variable Overhead Cost

$54,210

Actual Total Fixed Overhead Cost

$100,200

1.What was the total predetermined overhead rate?

2.How much overhead was applied to products during the period?