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i saw $2per hour on variable overhead or 40%of direct labour.how did they got 40%.and also how did they got the figure in variable overhead amount of $126,169.
Are you really asking about Dec 2007 question 3?? Please can you check.
I am sorry, but Q3 of the December 2007 real exam has nothing about variable overheads in it. The numbers part of the question is calculating sales variances.
The pilot paper was not December 2007 🙂
Labour is paid $5 per hour and variable overheads are $2 per hour (both from the question). And therefore the variable overheads will always be $2 for every $5 of labour.
So the total variable overhead cost will be 2/5 x the total labour cost.
2/5 = 40%, so it is the same as saying that it is 40% x total labour cost.The total labour cost is $315423 (the workings are in the answer) and so the total variable overhead cost is 2/5 (or 40%) x 315423 = $126169
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