Svenson Technology considers direct labor cost too insignificant to separately account for, and, therefore, uses a $22.50 per machine hour predetermined conversion cost rate (of which $16 is related to fixed overhead costs). The conversion rate was established based on expected capacity of 1,008,600 machine hours. One of Svenson Technology’s products requires 4.1 machine hours to manufacture.
In September 2010, the company manufactured 21,000 units of product and used 83,000 machine hours and 840 direct labor hours. Variable and fixed conversion costs incurred for September were $551,230 and $1,330,000, respectively.
a. What is the expected capacity per month in units and machine hours?
b. Prepare a four- and three-variance analysis of conversion costs for September 2010.