Question

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 (1.9 hrs. @ $10.00 per hr.) Overhead (1.9 hrs. @ $18.50 per hr.) Total standard cost $20.00 19.00 35.15 $74.15 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 24,000 Depreciation-Machinery 70,000 Taxes and insurance 18.000 $135,000

Answer 1

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 overhead costs
Depreciation—Building		24,000	24,000	24,000	24,000
Depreciation—Machinery		70,000	70,000	70,000	70,000
Taxes and insurance		18,000	18,000	18,000	18,000
Supervision		280,250	280,250	280,250	280,250
Total fixed overhead costs		392250	392250	392250	392250
Total overhead costs			509250	527250	545250

3
Actual Cost								Standard Cost
AQ	x	AP		AQ	x	SP		SQ	x	SP
61,500	x	5.20		61,500	x	$5.00		60,000	x	$5.00
	319800				307500				300000
			12300				7500
Direct materials price variance				12300	Unfavorable
Direct materials quantity variance				7500	Unfavorable
Total direct materials variance				19800	Unfavorable
4
Actual Cost								Standard Cost
AH	x	AR		AH	x	SR		SH	x	SR
19,000	x	$10.30		19,000	x	$10.00		28,500	x	$10.00
	195700				190000				285000
			5700				95000
Direct labor rate variance				5700	Unfavorable
Direct labor efficiency variance				95000	Favorable
Total direct labor variance				89300	Favorable

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	41,700	26,700	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	270300	135,300	Unfavorable
Fixed costs
Depreciation—Building	24,000	24,000	0	No variance
Depreciation—Machinery	70,000	94,500	24,500	Unfavorable
Taxes and insurance	18,000	16,200	1,800	Favorable
Supervision	280,250	280,250	0	No variance
Total fixed costs	392250	414950	22,700	Unfavorable
Total overhead costs	527250	685250	158,000	Unfavorable