Question

The Finishing Department of Pinnacle Manufacturing Co. prepared the following factory overhead cost budget for October of the current year, during which it expected to operate at a 100% capacity of 10,000 machine hours.

Variable costs:
Indirect factory wages	$18,000
Power and light	12,000
Indirect materials	4,000
Total variable cost		$34,000
Fixed costs:
Supervisory salaries	$12,000
Depreciation of plant and equipment	8,800
Insurance and property taxes	3,200
Total fixed cost		24,000
Total factory overhead		$58,000

During October, the plant was operated for 9,000 machine hours and the factory overhead costs incurred were as follows: indirect factory wages, $16,400; power and light, $10,000; indirect materials, $3,000; supervisory salaries, $12,000; depreciation of plant and equipment, $8,800; and insurance and property taxes, $3,200.

Prepare a factory overhead cost variance report for October. (The budgeted amounts for actual amount produced should be based on 9,000 machine hours.)

Enter favorable variances as negative numbers.

Pinnacle Manufacturing Co.-Finishing Department Factory Overhead Cost Variance Report For the Month Ending October 31
Productive capacity for the month (100% of normal)		hours
Actual production for the month		hours
	Actual Cost	Budget (at Actual Production)	Variances
			Unfavorable	(Favorable)
Variable factory overhead costs:
Indirect factory wages	$	$	$
Power and light				$
Indirect materials
Total variable factory overhead cost	$	$
Cost Information
Fixed factory overhead costs:
Supervisory salaries	$	$
Depreciation of plant and equipment
Insurance and property taxes
Total fixed factory overhead cost	$	$
Total factory overhead cost	$	$
Total controllable variances			$	$
Net controllable variance-favorable			$
Volume variance-unfavorable:
Capacity not used at the standard rate    for fixed factory overhead
Total factory overhead cost variance-unfavorable			$

Answer 1

Requirement:

Pinnacle Manufacturing Co.-Finishing Department Factory Overhead Cost Variance Report For the Month Ending October 31
Productive capacity for the month (100% of normal)		10,000hours
Actual production for the month		9000 hours
	Actual Cost	Budget (at Actual Production)	Variances
			Unfavorable	(Favorable)
Variable factory overhead costs:
Indirect factory wages	$16,400	$ 16,200	$ 200
Power and light	$10,000	$10,800		$ 800
Indirect materials	$3000	$3600		$600
Total variable factory overhead cost	$ 30,600	$ 29,400
Cost Information
Fixed factory overhead costs:
Supervisory salaries	$ 12,000	$ 12,000
Depreciation of plant and equipment	8,800	8800
Insurance and property taxes	3,200	3,200
Total fixed factory overhead cost	$24,000	$ 24,000
Total factory overhead cost	$ 54,600	$53,400
Total controllable variances			$ 200	$ 1400
Net controllable variance-favorable			$ 1,200
Volume variance-unfavorable:
Capacity not used at the standard rate    for fixed factory overhead	( 1000×$2.4)		$2400
Total factory overhead cost variance-unfavorable			$ 1200

Explanation:

1) Indirect Factory wages:

= $ 18000 ÷10,000×9000= $ 16,200

2) Power and Light

=$ 12,000 ÷10,000×9000= $ 10,800

3) Indirect Materials:

= $ 4000 ÷ 10,000 ×9000= $ 3600

4) Idle Hour:

10,000 - 9000 = 1000 hour

5) Fixed Factory overhead Rate

=$ 24,000 ÷ 10,000 = $ 2.4 per hour