At Overland Company, maintenance cost is exclusively a variable cost that varies directly with machine hours

Accounting Aug 19, 2020

At Overland Company, maintenance cost is exclusively a variable cost that varies directly with machine hours. The performance report for July showed that total actual maintenance costs were $9,800 and that the associated spending variance was $200 unfavourable. If 8,000 machine hours were actually worked during July, what was the budgeted maintenance cost per machine hour?

Expert Solution

Computation of the budgeted maintenance cost per machine hour:-

Budgeted maintenance cost per machine hour = (Actual maintenance cost - Unfavorable variance) / Machine hours

= ($9,800 - $200) / 8,000

= $9,600 / 8,000

= $1.20

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