Question

Blaze Corp. applies overhead on the basis of direct labor hours. For the month of March, the company planned production of 10,000 units (80% of its production capacity of 12,500 units) and prepared the following budget:

	Operating Levels
Overhead Budget	80%
Production in units		10,000
Standard direct labor hours		20,000
Budgeted overhead
Variable overhead costs
Indirect materials	$	21,000
Indirect labor		25,000
Power		6,800
Maintenance		5,200
Total variable costs		58,000
Fixed overhead costs
Rent of factory building		24,000
Depreciation—Machinery		28,000
Taxes and insurance		3,800
Supervisory salaries		12,200
Total fixed costs		68,000
Total overhead costs	$	126,000

During March, the company operated at 90% capacity (11,250 units), and it incurred the following actual overhead costs.

Overhead Costs
Indirect materials	$	21,000
Indirect labor		25,000
Power		7,650
Maintenance		6,580
Rent of factory building		24,000
Depreciation—Machinery		25,000
Taxes and insurance		4,650
Supervisory salaries		15,350
Total actual overhead costs	$	129,230

1. Compute the overhead controllable variance.
2. Compute the overhead volume variance.
3. Prepare an overhead variance report at the actual activity level of 9,000 units.
ontrollable Variance Total actual overhead Flexible budget overhead Total Overhead controllable variance

Answer 1

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Sign of amount can be +/-per question: Solution: Controllable Variance: 1) Total Actual Overhead Flexible Budget overhead: Variable (58000/10000) 11250 Fixed Total Overhead Controllable Variance 129230 $ 65,250 $ 68,000 133250 4,020 Favorable $ Volume Variance: Total Budgeted Fixed Overhead Total Fixed overhead applied (68000/10000) 11250 Volume variance $ 68,000 $ 76,500 8,500 Favorable $ 21

Overhead Variance Report 80% of Capacity 90% of Capacity $ 3) Expected production volume Production level achieved Volume variance Controllable Variance Variable overhead costs: Indirect Materials (item/10000) 11250 Indirect Labor Power Maintenance 8,500 Favorable Flexible Variance Fav./Unfav. Actual $ 23,625 $ 21,000 $ 2,625 Favorable 28,125 $ 25,000 $ 3,125 Favorable 7,650 $ 7,650 $ 0 No Variance $ 5,850 $ 6,580 $ 730 Unfavorable Total Variable cost Fixed overhead costs: Rent of factory building Depreciation - Mach inery Taxes and Insurance Supervisory salaries 65,250 $ 60,230 $ 5,020 Favorable 24,000 $ 24,000 $ No Variance 3,000 Favorable 28,000 $ 25,000 $ 3,800 $ 4,650 $ 850 Unfavorable 12,200 $ 15,350 $ 3,150 Unfavorable Total Fixed costs Total Overhead costs 68,000 $ 69,000 $ 1,000 Unfavorable 129230 $ 4,020 Favorable 133250