Question

Expand Your Critical Thinking 24-02 a-d Ana Carillo and Associates is a medium-sized company located near a large metropolitan area in the Midwest. The company manufactures cabinets of mahogany, oak, and other fine woods for use in expensive homes, restaurants, and hotels. Although some of the work is custom, many of the cabinets are a standard size. One such non-custom model is called Luxury Base Frame. Normal production is 1,000 units. Each unit has a direct labor hour standard of 5 hours. Overhead is applied to production based on standard direct labor hours. During the most recent month, only 920 units were produced; 4,500 direct labor hours were allowed for standard production, but only 4,000 hours were used. Standard and actual overhead costs were as follows. Standard (1,000 units) Actual (920 units) $ 12,200 $ 12,600 Indirect materials Indirect labor 43,900 52,000 (Fixed) Manufacturing supervisors salaries 23,000 22,400 (Fixed) Manufacturing office employees salaries 13,300 12,800 (Fixed) Engineering costs 27,600 25,500 Computer costs 10,200 10,200 Electricity 2,600 2,600 (Fixed) Manufacturing building depreciation 8,200 8,200 (Fixed) Machinery depreciation 3,100 3,100 (Fixed) Trucks and forklift depreciation 1,500 1,500 Small tools 700 1,400 (Fixed) Insurance 500 500 (Fixed) Property taxes 300 300 $147,100 $153,100 Total

Answer 1

Solution: Calculation of Variances:
Controllable variance	6000	U
Actual overhead-Overhead Budgted
$153100 - $147100
Volume variance	7750	U
(Normal hours-Standard hours)*Fixed overhed rate
[(1000*5)-4500]* $15.5

Working: Calculation of Budgeted fixed ovrhead per hour
	For Standard $
Manufacturing supervisors salaries	23,000
Manufacturing office employees salaries	13,300
Engineering costs	27,600
Manufacturing building depreciation	8,200
Machinery depreciation	3,100
Trucks and forklift depreciation	1,500
Insurance	500
Property taxes	300
Total Budgeted Fixed cost	77,500
No. of hours (1000*5)	5,000
Budgeted fixed overhead per hour	$15.5