Question

Part 1) 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 (1.8 hrs. @ $11.00 per hr.) 19.80 Overhead (1.8 hrs. @ $18.50 per hr.) 33.30 Total standard cost $ 77.10 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 70,000 Taxes and insurance 17,000 Supervision 253,500 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 (61,000 Ibs. @ $6.20 per lb.) $ 378,200 Direct labor (21,000 hrs. @ $11.30 per hr.) 237,300 Overhead costs Indirect materials $ 41,750 Indirect labor 176,200 Power 17,250 Repairs and maintenance 34,500 Depreciation—Building 24,000 Depreciation—Machinery 94,500 Taxes and insurance 15,300 Supervision 253,500 657,000 Total costs $ 1,272,500 Required: 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.

Part 2) Compute the direct materials cost variance, including its price and quantity variances. AQ = Actual Quantity SQ = Standard Quantity AP = Actual Price SP = Standard Price

Part 3) Compute the direct labor cost variance, including its rate and efficiency variances. AH = Actual Hours SH = Standard Hours AR = Actual Rate SR = Standard Rate

Part 4) Prepare a detailed overhead variance report that shows the variances for individual items of overhead.

Answer 1

Antuan Company

Flexible Overhead Budget for Month October

Particulars	Per Unit Cost	65% Capacity	75% Capacity	85%Capacity
Sales ( in unit )
Variable overhead cost		Amount in $	Amount in $	Amount in $
Indirect Material		13000	15000	17000
Indirect Labour		65000	75000	85000
Power		13000	15000	17000
Repair & Maintenance		26000	30000	34000
Total Variable Overhead Cost		$117000	$135000	$153000
Fixed Overhead cost		Amount in $	Amount in $	Amount in $
Depreciation on Building		24000	24000	24000
Depriciation on Machinery		70000	70000	70000
Tax		17000	17000	17000
Supervision		253500	253500	253500
Total Fixed Overhead Cost		$364500	$364500	$364500
Total Overhead Cost		$481500	$499500	$517500

PART - 2) Calculation of Material Cost Variances , Material Rate Variances , Material quantity variances as Follows :-

Standard Cost		Actual Cost
SP*SQ	SP*AQ	AP*AQ
$6 * (20000 unit * 4lbs/unit) =$6 * 80000lbs =$480000	$6 * 61000lbs =$366000	=$6.2 * 61000lbs =$378200

so , Material Cost Variences = Standard cost - Actual Cost = $480000 - $378200 = $101800 F

Material Quantity Variances = SP*SQ - SP*AQ = $480000 - $366000 = $114000 F

Material Price Variences = SP*AQ -AP*AQ = $366000 - $ 378200 = $12200 A

AQ = Actual Quantity
SQ = Standard Quantity
AP = Actual Price
SP = Standard Price

Part 3)

Calculation of Labour Cost Variances , Labour Rate Variances , Labour Efficiency variances as Follows :-

Standard Cost		Actual Cost
SR*SH	SR*AH	AR*AH
$11 * (20000 unit * 1.8 hrs /unit) =$11* 36000 hrs =$396000	$11 * 21000 hrs =$231000	=$11.3 * 21000 hrs =$237300

so , Labour Cost Variences = Standard cost - Actual Cost = $396000 - $237300 = $158700 F

Labour Efficiency Variances = SR*SH - SR*AH = $396000 - $231000 = $165000 F

Labour Rate Variences = SR*AH -AR*AH = $231000 - $ 237300 = $6300 A

AH = Actual Hours
SH = Standard Hours
AR = Actual Rate
SR = Standard Rate

Part 4)Detailed Overhead Variance Report

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	$41,750	$26750	Unfavorable
Indirect labour	$75,000	$176,200	$101200	Unfavorable
Power	$15,000	$17,250	$2250	Unfavorable
Repairs and maintenance	$30,000	$34,500	$4500	Unfavorable
Total variable costs	$135,000	$269,700	$134700	Unfavorable
Fixed costs
Depreciation—Building	$24,000	$24,000	NIL	No variance
Depreciation—Machinery	$70,000	$94,500	$24,500	Unfavorable
Taxes and insurance	$17,000	$15,300	$1,700	Favorable
Supervision	$2,53,500	$2,53,500	NIL	No variance
Total fixed costs	$349,500	$387,300	$37,800	Unfavorable
Total overhead costs	$499,500	$657,000	$157,500	Unfavorable