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 (1.7 hrs. @ $12.00 per hr.)		20.40
Overhead (1.7 hrs. @ $18.50 per hr.)		31.45
Total standard cost	$	71.85

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		71,000
Taxes and insurance		18,000
Supervision		224,750
Total fixed overhead costs					336,750
Total overhead costs				$	471,750

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

Direct materials (61,500 Ibs. @ $5.10 per lb.)				$	313,650
Direct labor (21,000 hrs. @ $12.30 per hr.)					258,300
Overhead costs
Indirect materials	$	41,700
Indirect labor		176,850
Power		17,250
Repairs and maintenance		34,500
Depreciation—Building		23,000
Depreciation—Machinery		95,850
Taxes and insurance		16,200
Supervision		224,750			630,100
Total costs				$	1,202,050

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.

3. Compute the direct materials cost variance, including its price and quantity variances.

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

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		23,000	23,000	23,000	23,000
Depreciation—Machinery		71,000	71,000	71,000	71,000
Taxes and insurance		18,000	18,000	18,000	18,000
Supervision		224,750	224,750	224,750	224,750
Total fixed overhead costs		336750	336750	336750	336750
Total overhead costs			453750	471750	489750

3
Actual Cost								Standard Cost
AQ	x	AP		AQ	x	SP		SQ	x	SP
61,500	x	5.10		61,500	x	$5.00		60,000	x	$5.00
	313650				307500				300000
			6150				7500
Direct materials price variance				6150	Unfavorable
Direct materials quantity variance				7500	Unfavorable
Total direct materials variance				13650	Unfavorable