Reid Shaw Company produces one product, a putter called GO-Putter. Shaw uses a standard cost system and determines that it should take one hour of direct labor to produce one GO-Putter. The normal production capacity for this putter is 100,000 units per year. The total budgeted overhead at normal capacity is $800,000 comprised of $200,000 of variable costs and $600,000 of fixed costs. Shaw applies overhead on the basis of direct labor hours.
During the current year, Shaw produced 90,000 putters, worked 94,000 direct labor hours, and incurred variable overhead costs of $186,000 and fixed overhead costs of $600,000.