Question

Antuan Company set the following standard costs for one unit of its product.

Direct materials (4.0 Ibs. @ $6.00 per Ib.)	$	24.00
Direct labor (1.9 hrs. @ $13.00 per hr.)		24.70
Overhead (1.9 hrs. @ $18.50 per hr.)		35.15
Total standard cost	$	83.85

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		23,000
Depreciation—Machinery		70,000
Taxes and insurance		17,000
Supervision		282,250
Total fixed overhead costs					392,250
Total overhead costs				$	527,250

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

Direct materials (60,500 Ibs. @ $6.10 per lb.)				$	369,050
Direct labor (21,000 hrs. @ $13.20 per hr.)					277,200
Overhead costs
Indirect materials	$	41,250
Indirect labor		176,850
Power		17,250
Repairs and maintenance		34,500
Depreciation—Building		23,000
Depreciation—Machinery		94,500
Taxes and insurance		15,300
Supervision		282,250			684,900
Total costs				$	1,331,150

1&2. Prepare flexible overhead budgets for October showing the amounts of each variable and fixed cost at the 65%, 75%, and 85% capacity levels and classify all items listed in the fixed budget as variable or fixed.

ANTUAN COMPANY Flexible Overhead Budgets For Month Ended October 31 Flexible Budget Flexible Budget for Variable Amount Total Fixed 65% of 85% of per Unit Cost capacity capacity capacity Sales (in units) Variable overhead costs $ 0.00 Fixed overhead costs 0 0 Total overhead costs

3. Compute the direct materials cost variance, including its price and quantity variances. (Indicate the effect of each variance by selecting for favorable, unfavorable, and No variance.)

4. Compute the direct labor cost variance, including its rate and efficiency variances. (Indicate the effect of each variance by selecting for favorable, unfavorable, and No variance. Round "Rate per hour" answers to two decimal places.)

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

1 & 2 Flexible Overhead Budget Antuan Company Flexible Overhead Budget For month Ended October 31 Flexible Budget Flexible Budget at Variable cost per Unit Fixed Cost 659 65% of Capacity 75% of Capacity 85% of Capacity 13000 15000 17000 $ $ 13,000 $ 65,000 $ 13,000 $ 26,000 $ 117,000 $ 15,000 75,000 15,000 30,000 135,000 $ $ $ $ $ 17,000 85,000 17,000 34,000 153,000 $ $ Sales in units Variable Cost: Indirect Material Indirect Labor Power Repairs & Maintenance Total Variable Cost Fixed Cost : Depreciation - Building Depreciation - Machinery Taxes and Insurance Supervision Total Fixed Cost Total Overhead Cost 23,000 $ 70,000 $ 17,000 $ 282,250 $ 392,250 $ $ 23,000 $ 70,000 $ 17,000 $ 282,250 $ 392,250 $ 509,250 $ 23,000 $ 70,000 $ 17,000 $ 282,250 $ 392,250 $ 527,250 $ 23,000 70,000 17,000 282,250 392,250 545,250 Variable cost per Unit 65% of Capacity 75% of Capacity 85% of Capacity 20000*65% 20000*75% 20000*85% Sales in units Variable Cost: Indirect Material Indirect Labor Power Repairs & Maintenance 15000/15000 75000/15000 15000/15000 30000/15000 1 x 13000 5 x 13000 1 x 13000 2 x 13000 1 x 15000 5 x 15000 1 x 15000 2 x 15000 1 x 17000 5 x 17000 1 x 17000 12x 17000 L Fixed cost remain same at all level of activity.

3.Direct Material cost variance including its price and quantity variance Flexible Actual Cost AQ x ТАР 60500 $ 6.10 AQ SP Standard Cost SQ X 60000 $ SP 60500 $ 6.00 6.00 $ 369,050 $ 363,000 $360,000 $ 6,050 3,000 Price Variance Quantity Variance Total Direct Material cost variance $ $ $ 6,050 3,000 9,050 Unfavorable Unfavorable Unfavorable Standard Quantity= number of units X lbs per unit Here number of units are 15000 units standard Ibs per unit is 4.00 so total standard quantity is 15000 X 4.00=60000 lbs Price variance = actual cost - standard price at actual quantity (flexible cost) Quantity variance = standard price at actual quantity (flexible cost) - Standard price at standard quantity Price variance is favorable when actual cost incurred is less than standard cost at actual hours, and unfavorable when actual cost incurred is more than standard cost at actual Qty. Quanity variance is favorable when actual quantity used is less than budgeted quantity, and unfavorable when actual quantity used is more than budgeted quantty.

4.Direct labor cost variance including its rate and efficiency variance Actual Cost AH X 21000 Flexible X L AR 13.20 AH L 21000 SR 13.00 Standard Cos SH X 285001 $ $ $ 277,200 $ 273,000 $ 370,500 $ 4,200 97,500 Direct Labor rate Variance Direct Labor efficiency Variance Total Direct labor cost variance $ $ $ 4,200 97,500 101,700 Unfavorable favorable favorable Standard hours = number of units X hours per unit Here number of units are 15000 units standard hours per unit is 1.90 so total standard hours is 1500 X 1.90= 28500 hours Rate variance = actual cost - standard rate at actual hours Efficiency variance = standard rate at actual hours - Standard rate at standard hours Rate variance is favourable when actual cost incurred is less than standard cost at actual hours, and unfavourable when actual cost incurred is more than standard cost at actual hours. Efficiency variance is favourable when actual hours used are less than budgeted hours, and unfavourable when actual hours used are more than budgeted hours. 5. Detailed Overhead Variance Report Expected Production Volume Production Level achieved Volume Variance Antuan Company Overhead Variance Report For month Ended October 31 75% of capacity 75% of capacity No Variance Flexible Budget Actual Results Varaince 15,000 75,000 15,000 30,000 135,000 $ $ $ $ $ 41,250 $ 176,850 $ 17,250 $ 34,500 $ 269,850 $ 26,250 Unfavorable 101,850 Unfavorable 2,250 Unfavorable 4,500 Unfavorable 134,850 Unfavorable Variable Cost: Indirect Material Indirect Labor Power Repairs & Maintenance Total Variable Cost Fixed Cost: Depreciation - Building Depreciation - Machinery Taxes and Insurance Supervision Total Fixed Cost Total Overhead Cost 23,000 $ 70,000 $ 17,000 $ 282,250 $ 392,250 $ 527,250 $ 23,000 $ 94,500 $ 15,300 $ 282,250 $ 415,050 $ 684,900 $ - No variance 24,500 Unfavorable 1,700 favorable - No variance 22,800 Unfavorable 157,650 Unfavorable