Question

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 BOX 10,000 28,000 Overhead Budget Production in units Standard direct labor hours Budgeted overhead Variable overhead costs Indirect materials Indirect labor Power Maintenance Total variable costs Fixed overhead costs Rent of factory building Depreciation Machinery Supervisory salaries Total fixed costs Total overhead costs $ 15,400 28,000 7,000 5,600 56,000 24,000 10,900 15,500 50,400 $106, 460 During May, the company operated at 90% capacity (11.250 units) and incurred the following actual overhead costs overhead costs (actual Indirect materials Indirect labor Power Maintenance Rent of factory building 15,400 30,950 7,875 6,940 24,000

Answer 1

1.

Controllable Variances
Total Actual Overhead		$ 115,065
Flexible Budget Overhead
Variable	$ 63,000
Fixed	50,400
Total		113,400
Overhead Controllable Variance		$ 1,665	Unfavorable

2.

Volume Variance
Total Budgeted Fixed Overhead	$ 50,400
Total Budgeted Overhead Applied	56,700
Volume Variance	$ 6,300	Favorable

3.

James Corp. Overhead Variance Report For the month ended May 31
Expected production volume	10,000 units 11,250 units
Production level achieved
Volume variance	$ 6,300	Favorable
Controllable variance	Flexible Budget	Actual Results	Variances	Fav / Unfav
Variable overhead costs
Indirect materials	$ 17,325	$ 15,400	$ 1,925	Fav.
Indirect labor	31,500	30,950	550	Fav
Power	7,875	7,875	0	None
Maintenance	6,300	6,940	640	Unfav.
Total variable costs	$ 63,000	$ 61,165	1,835	Fav
Fixed overhead costs
Rent of factory building	24,000	24,000	0	None
Depreciation of machinery	10,900	10,900	0	None
Supervisory salaries	15,500	19,000	3,500	Unfav
Total fixed costs	50,400	53,900	3,500	Unfav.
Total overhead costs	$ 113,400	$ 115,065	1,665	Unfav.