Question

Required information Problem 21-3A Flexible budget preparation; computation of materials, labor, and overhead variances; and overhead variance report LO P1, P2, P3, C2 [The following information applies to the questions displayed below.) Antuan Company set the following standard costs for one unit of its product. Direct materials (4.0 Ibs. @ $5.00 per Ib.) Direct labor (1.6 hrs. $11.00 per hr.) Overhead (1.6 hrs. @ $18.50 per hr.) Total standard cost $20.00 17.60 29.60 567.20 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 Fixed overhead costs Depreciation-Building 25,000 Depreciation Machinery 72,000 Taxes and insurance 17,000 Supervision 195,000 Total fixed overhead costs Total overhead costs $135,000 309,000 $444,000 The company incurred the following actual costs when it operated at 75% of capacity in October $ Direct materials (60,500 lbs. @ $5.10 per lb.) Direct labor (24,000 hrs. @ $11.10 per hr.) 308,550 266,400 -

Answer 1

1&2

ANTUAN COMPANY
Flexible Overhead Budgets
For Month Ended October 31
	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 costs
Indirect materials	1.00		13,000	15,000	17,000
Indirect labor	5.00		65,000	75,000	85,000
Power	1.00		13,000	15,000	17,000
Repairs and maintenance	2.00		26,000	30,000	34,000
Total variable overhead costs	9.00		117000	135000	153000
Fixed costs
Depreciation—Building		25,000	25,000	25,000	25,000
Depreciation—Machinery		72,000	72,000	72,000	72,000
Taxes and insurance		17,000	17,000	17,000	17,000
Supervision		195,000	195,000	195,000	195,000
Total fixed overhead costs		309000	309000	309000	309000
Total overhead costs			426000	444000	462000

3

Actual Cost								Standard Cost
AQ	x	AP		AQ	x	SP		SQ	x	SP
60,500	x	5.10		60500	x	$5.00		60,000	x	$5.00
	308550				302500				300000
			6050				2500
Direct materials price variance				6050	Unfavorable
Direct materials quantity variance				2500	Unfavorable
Total direct materials variance				8550	Unfavorable
4
Actual Cost								Standard Cost
AH	x	AR		AH	x	SR		SH	x	SR
24,000	x	$11.10		24,000	x	$11.00		24,000	x	$11.00
	266400				264000				264000
			2400				0
Direct labor rate variance				2400	Unfavorable
Direct labor efficiency variance				0	None
Total direct labor variance				2400	Unfavorable

5
ANTUAN COMPANY
Overhead Variance Report
For Month Ended October 31
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 materials	15,000	41,800	26,800	Unfavorable
Indirect labor	75,000	176,850	101,850	Unfavorable
Power	15,000	17,250	2,250	Unfavorable
Repairs and maintenance	30,000	34,500	4,500	Unfavorable
Total variable costs	135000	270400	135,400	Unfavorable
Fixed costs
Depreciation—Building	25,000	25,000	0	No variance
Depreciation—Machinery	72,000	97,200	25,200	Unfavorable
Taxes and insurance	17,000	15,300	1,700	Favorable
Supervision	195,000	195,000	0	No variance
Total fixed costs	309000	332500	23,500	Unfavorable
Total overhead costs	444000	602900	158,900	Unfavorable