Question

 

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

Direct materials (4.0 Ibs. @ $5.00 per Ib.)	$	20.00
Direct labor (1.8 hrs. @ $11.00 per hr.)		19.80
Overhead (1.8 hrs. @ $18.50 per hr.)		33.30
Total standard cost	$	73.10

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		71,000
Taxes and insurance		16,000
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. @ $5.20 per lb.)				$	317,200
Direct labor (19,000 hrs. @ $11.30 per hr.)					214,700
Overhead costs
Indirect materials	$	41,500
Indirect labor		176,050
Power		17,250
Repairs and maintenance		34,500
Depreciation—Building		24,000
Depreciation—Machinery		95,850
Taxes and insurance		14,400
Supervision		253,500			657,050
Total costs				$	1,188,950

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.

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)           Variable overhead costs                                                                         $0.00   0 0 0 Fixed overhead costs                                                                           0 0 0 0 Total overhead costs

	Actual Cost 0   0 Standard Cost Actual quantity x Actual price Actual quantity x Standard price Standard quantity x Standard price   x 0   x     x                       $0 0 $0       $0       0

	Actual Cost 0   0 Standard Cost Actual hours x Actual rate Actual hours x Standard rate Standard hours x Standard rate   x     x     x                       $0 0 $0     Direct labor rate variance $0 Unfavorable   Direct labor rate variance 0 Favorable Total direct labor variance   Favorable

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		71,000	71,000	71,000	71,000
Taxes and insurance		16,000	16,000	16,000	16,000
Supervision		253,500	253,500	253,500	253,500
Total fixed overhead costs		364500	364500	364500	364500
Total overhead costs			481500	499500	517500

3
Actual Cost								Standard Cost
AQ	x	AP		AQ	x	SP		SQ	x	SP
61,000	x	5.20		61,000	x	$5.00		60,000	x	$5.00
	317200				305000				300000
			12200				5000
Direct materials price variance				12200	Unfavorable
Direct materials quantity variance				5000	Unfavorable
Total direct materials variance				17200	Unfavorable
4
Actual Cost								Standard Cost
AH	x	AR		AH	x	SR		SH	x	SR
19,000	x	$11.30		19,000	x	$11.00		27,000	x	$11.00
	214700				209000				297000
			5700				88000
Direct labor rate variance				5700	Unfavorable
Direct labor efficiency variance				88000	Favorable
Total direct labor variance				82300	Favorable