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 (1.8 hrs. @ $11.00 per hr.)		19.80
Overhead (1.8 hrs. @ $18.50 per hr.)		33.30
Total standard cost	$	68.10

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		24,000
Depreciation—Machinery		71,000
Taxes and insurance		18,000
Supervision		251,500
Total fixed overhead costs					364,500
Total overhead costs				$	499,500

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

Direct materials (46,500 Ibs. @ $5.20 per lb.)				$	241,800
Direct labor (21,000 hrs. @ $11.20 per hr.)					235,200
Overhead costs
Indirect materials	$	41,500
Indirect labor		176,900
Power		17,250
Repairs and maintenance		34,500
Depreciation—Building		24,000
Depreciation—Machinery		95,850
Taxes and insurance		16,200
Supervision		251,500			657,700
Total costs				$	1,134,700

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

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	41,500	26,500	Unfavorable
Indirect labor	75,000	176,900	101,900	Unfavorable
Power	15,000	17,250	2,250	Unfavorable
Repairs and maintenance	30,000	34,500	4,500	Unfavorable
Total variable costs	135000	270150	135,150	Unfavorable
Fixed costs
Depreciation—Building	24,000	24,000	0	No variance
Depreciation—Machinery	71,000	95,850	24,850	Unfavorable
Taxes and insurance	18,000	16,200	1,800	Favorable
Supervision	251,500	251,500	0	No variance
Total fixed costs	364500	387550	23,050	Unfavorable
Total overhead costs	499500	657700	158,200	Unfavorable