James Corp. applies overhead on the basis of direct labor hours.
For the month of May, the company planned production of 10,000
units (80% of its production capacity of 12,500 units) and prepared
the following overhead budget:
Operating Levels | |||
Overhead Budget | 80% | ||
Production in units | 10,000 | ||
Standard direct labor hours | 26,000 | ||
Budgeted overhead | |||
Variable overhead costs | |||
Indirect materials | $ | 15,600 | |
Indirect labor | 26,000 | ||
Power | 7,800 | ||
Maintenance | 2,600 | ||
Total variable costs | 52,000 | ||
Fixed overhead costs | |||
Rent of factory building | 22,000 | ||
Depreciation—Machinery | 10,700 | ||
Supervisory salaries | 21,900 | ||
Total fixed costs | 54,600 | ||
Total overhead costs | $ | 106,600 | |
During May, the company operated at 90% capacity (11,250 units) and
incurred the following actual overhead costs:
Overhead costs (actual) | |||
Indirect materials | $ | 15,600 | |
Indirect labor | 28,800 | ||
Power | 8,775 | ||
Maintenance | 3,555 | ||
Rent of factory building | 22,000 | ||
Depreciation—Machinery | 10,700 | ||
Supervisory salaries | 25,200 | ||
Total actual overhead costs | $ | 114,630 | |
1. Compute the overhead controllable variance and
classify it as favorable or unfavorable.
2. Compute the overhead volume variance and
classify it as favorable or unfavorable.
3. Prepare an overhead variance report at the
actual activity level of 11,250 units.
Solution 1:
Controllable Variance | |||
Total actual overhead | $114,630.00 | ||
Flexible Budget Overhead | |||
Fixed | $54,600.00 | ||
Variable | $58,500.00 | ||
Total | $113,100.00 | ||
Overhead controllable variance | $1,530.00 | Unfavorable |
Solution 2:
Volume Variance | ||
Total Budgeted Fixed overhead | $54,600.00 | |
Total fixed overhead applied | $61,425.00 | |
Volume Variance | $6,825.00 | Favorable |
Solution 3:
James Corp | ||||
Overhead variance Report | ||||
For the month ended May 31 | ||||
Expected production volume | 80% of capacity | |||
Production level achieved | 90% of capacity | |||
Volume variance | $6,825.00 | Favorable | ||
Controllable variance | Flexible budget | Actual results | Variances | Fav/Unfav. |
Variable overhead costs: | ||||
Indirect material | $17,550.00 | $15,600.00 | $1,950.00 | Favorable |
Indirect labor | $29,250.00 | $28,800.00 | $450.00 | Favorable |
Power | $8,775.00 | $8,775.00 | $0.00 | No Variance |
Maintenance | $2,925.00 | $3,555.00 | $630.00 | Unfavorable |
Total variable costs | $58,500.00 | $56,730.00 | $1,770.00 | Favorable |
Fixed overhead costs: | ||||
Rent of factory building | $22,000.00 | $22,000.00 | $0.00 | No Variance |
Depreciation - Machinery | $10,700.00 | $10,700.00 | $0.00 | No Variance |
Supervisory salaries | $21,900.00 | $25,200.00 | $3,300.00 | Unfavorable |
Total fixed costs | $54,600.00 | $57,900.00 | $3,300.00 | Unfavorable |
Total overhead costs | $113,100.00 | $114,630.00 | $1,530.00 |
Unfavorable |
James Corp. applies overhead on the basis of direct labor hours. For the month of May,...
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James Corp. applies overhead on the basis of direct labor hours. For the month of May, the company planned production of 10,000 units (80% of its production capacity of 12,500 units) and prepared the following overhead budget: Operating Levels Overhead Budget 80% Production in units 10,000 Standard direct labor hours 25,000 Budgeted overhead Variable overhead costs Indirect materials $ 18,000 Indirect labor 25,000 Power 5,000 Maintenance 2,000 Total variable costs 50,000 Fixed overhead costs Rent of factory building 18,000 Depreciation—Machinery...
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