Question

HOW DO I CALCULATE?

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 80% 10,000 20,000 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 $12,000 20,000 5,000 3,000 40,000 19,000 10,400 14,600 44,000 $ 84,000 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 Depreciation Machinery Supervisory salaries Total actual overhead costs $12,000 22,200 5,625 3,990 19,000 10,400 17,600 $90,815 1. Compute the overhead controllable variance and classify it as favorable or unfavorable. 2. Compute the overhead volume variance and classify it as favorable or unfavorable. 3. Prepare an overhead variance report at the actual activity level of 11,250 units. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Compute the overhead controllable variance and classify it as favorable or unfavorable. (Indicate the effect of each variance by selecting for favorable, unfavorable, and no variance.) Controllable variance Total actual overhead Flexible budget overhead Total Overhead controllable variance

Answer 1

Answer -

1. Answer -

Controllable Variance
Total actual overhead		$90815
Flexible budget overhead:
Variable	$45000
Fixed	$44000
Total		$89000
Overhead controllable variance		$1815	Unfavorable

Calculation:

Flexible budget variable overhead = (Total budgeted variable overhead / Budgeted production in units) * Actual production in units

Flexible budget variable overhead = ($40000 / 10000 units) * 11250 units

Flexible budget variable overhead = $45000

2. Answer -

Volume Variance
Total budgeted fixed overhead	$44000
Total fixed overhead applied	$49500
Volume Variance	$5500	Favorable

Calculation:

Total fixed overhead applied = (Total budgeted fixed overhead / Budgeted production in units) * Actual production in units

Total fixed overhead applied = ($44000 / 10000 units) * 11250 units

Total fixed overhead applied = $49500

3. Answer -

JAMES CORP.
Overhead Variance Report
For Month Ended May 31
Expected production volume	80% of capacity
Production level achieved	90% of capacity
Volume variance	$5500	Favorable
Controllable Variance	Flexible Budget	Actual Results	Variances	Fav./Unfav.
Variable overhead costs:
Indirect materials	$13500	$12000	$1500	Favorable
Indirect labor	$22500	$22200	$300	Favorable
Power	$5625	$5625		No variance
Maintenance	$3375	$3990	$615	Unfavorable
Total variable costs	$45000	$43815	$1185	Favorable
Fixed overhead costs:
Rent of factory building	$19000	$19000		No variance
Depreciation-Machinery	$10400	$10400		No variance
Supervisory salaries	$14600	$17600	$3000	Unfavorable
Total fixed costs	$44000	$47000	$3000	Unfavorable
Total overhead costs	$89000	$90815	$1815	Unfavorable

Calculation:

Flexible budget variable overhead costs:

1. Indirect materials

= (Budgeted overhead cost / Budgeted production in units) * Actual production in units

= ($12000 / 10000 units) * 11250 units

= $13500

2. Indirect labor

= (Budgeted overhead cost / Budgeted production in units) * Actual production in units

= ($20000 / 10000 units) * 11250 units

= $22500

3. Power

= (Budgeted overhead cost / Budgeted production in units) * Actual production in units

= ($5000 / 10000 units) * 11250 units

= $5625

4. Maintenance

= (Budgeted overhead cost / Budgeted production in units) * Actual production in units

= ($3000 / 10000 units) * 11250 units

= $3375