Question

Antuan Company set the following standard costs for one unit of its product.

Direct materials (3.0 Ibs. @ $5.00 per Ib.)	$	15.00
Direct labor (2.0 hrs. @ $13.00 per hr.)		26.00
Overhead (2.0 hrs. @ $18.50 per hr.)		37.00
Total standard cost	$	78.00

The predetermined overhead rate ($18.50 per direct labor hour) is based on an expected volume of 75% of the factory’s capacity of 20,000 units per month. Following are the company’s budgeted overhead costs per month at the 75% capacity level.

Overhead Budget (75% Capacity)
Variable overhead costs
Indirect materials	$	15,000
Indirect labor		75,000
Power		15,000
Repairs and maintenance		30,000
Total variable overhead costs				$	135,000
Fixed overhead costs
Depreciation—Building		25,000
Depreciation—Machinery		70,000
Taxes and insurance		17,000
Supervision		308,000
Total fixed overhead costs					420,000

The company incurred the following actual costs when it operated at 75% of capacity in October.

Direct materials (46,000 Ibs. @ $5.20 per lb.)				$	239,200
Direct labor (21,000 hrs. @ $13.40 per hr.)					281,400
Overhead costs
Indirect materials	$	41,400
Indirect labor		176,600
Power		17,250
Repairs and maintenance		34,500
Depreciation—Building		25,000
Depreciation—Machinery		94,500
Taxes and insurance		15,300
Supervision		308,000			712,550
Total costs				$	1,233,150

Required:
1&2. Prepare flexible overhead budgets for October showing the amounts of each variable and fixed cost at the 65%, 75%, and 85% capacity levels and classify all items listed in the fixed budget as variable or fixed.

For Month Ended October 31 Flexible Budget Variable Amount Total Fixed 65% of per Unit Cost capacity Flexible Budget for 75% of 85% of capacity capacity Sales (in units) Variable overhead costs Fixed overhead costs Total overhead costs

3. Compute the direct materials cost variance, including its price and quantity variances. (Indicate the effect of each variance by selecting for favorable, unfavorable, and No variance.)

4. Compute the direct labor cost variance, including its rate and efficiency variances. (Indicate the effect of each variance by selecting for favorable, unfavorable, and No variance. Round "Rate per hour" answers to two decimal places.)

5. Prepare a detailed overhead variance report that shows the variances for individual items of overhead. (Indicate the effect of each variance by selecting for favorable, unfavorable, and No variance.)

Answer 1

1&2.

	Flexible Budget		Flexible Budget For
	Variable amount per unit	Total Fixed cost	65% of capacity	75% of capacity	85% of capacity
Sales in units			13,000	15,000	17,000
Variable overhead cost:
Indirect material ($15,000/15,000)=$1	$1		$13,000	$15,000	$17,000
Indirect labor (75,000/15,000)=$5	5		65,000	75,000	85,000
Power (15,000/15,000)=$1	1		13,000	15,000	17,000
Repairs and maintenance (30,000/15,000)=$2	2		26,000	30,000	34,000
Total variable overhead cost	9		117,000	135,000	153,000
Fixed overhead cost:
Depreciation-Building		$25,000	25,000	25,000	25,000
Depreciation-Machinery		70,000	70,000	70,000	70,000
Taxes and insurance		17,000	17,000	17,000	17,000
Supervision		308,000	308,000	308,000	308,000
Total fixed overhead cost		420,000	420,000	420,000	420,000
Total overhead costs			$537,000	$555,000	$573,000

3.

Actual cost								Standard cost
Actual quantity	$\times$	Actual price		Actual quantity	$\times$	Standard price		Standard quantity	$\times$	Standard price
46,000		$5.20		46,000		$5		45,000 (15,000*3)		$5
	$239,200				$230,000				$225,000
			$9,200 U				$5,000 U
Direct material price variance = $9,200 Unfavorable
Direct material quantity variance = $5,000 Unfavorable
Total direct material cost variance = $14,200 Unfavorable

4.

Actual cost								Standard cost
Actual hours	$\times$	Actual rate		Actual hours	$\times$	Standard rate		Standard hours	$\times$	Standard rate
21,000		$13.40		21,000		$13		30,000 (15,000*2)		$13
	$281,400				$273,000				$390,000
			$8,400 U				$117,000 F
Direct labor rate variance = $8,400 Unfavorable
Direct labor efficiency variance = $117,000 Favorable
Total direct labor cost variance = $108,600 Favorable

5.

Overhead Variance Report
Expected production volume	75% of capacity
Production level achieved	75% of capacity
Volume variance	No variance
	Flexible Budget	Actual Results	Variances	Fav./Unfav.
Variable costs:
Indirect material	$15,000	$41,400	$26,400	Unfavorable
Indirect labor	75,000	176,600	101,600	Unfavorable
Power	15,000	17,250	2,250	Unfavorable
Repairs and maintenance	30,000	34,500	4,500	Unfavorable
Total variable costs	135,000	269,750	134,750	Unfavorable
Fixed costs
Depreciation-Building	25,000	25,000	0	No variance
Depreciation-Machinery	70,000	94,500	24,500	Unfavorable
Taxes and insurance	17,000	15,300	1,700	Favorable
Supervision	308,000	308,000	0	No variance
Total fixed costs	420,000	442,800	22,800	Unfavorable
Total overhead cost	$555,000	$712,550	$157,550	Unfavorable