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Problem 21-3A Flexible budget preparation; computation of materials, labor, and overhead variances; and overhead variance report LO P1, P2, P3, C2

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

Direct materials (6 Ibs. @ $5 per Ib.)	$	30
Direct labor (2 hrs. @ $17 per hr.)		34
Overhead (2 hrs. @ $18.50 per hr.)		37
Total standard cost	$	101

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	$	45,000
Indirect labor		180,000
Power		45,000
Repairs and maintenance		90,000
Total variable overhead costs				$	360,000
Fixed overhead costs
Depreciation—Building		24,000
Depreciation—Machinery		80,000
Taxes and insurance		12,000
Supervision		79,000
Total fixed overhead costs					195,000
Total overhead costs				$	555,000

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

Direct materials (91,000 Ibs. @ $5.10 per lb.)				$	464,100
Direct labor (30,500 hrs. @ $17.25 per hr.)					526,125
Overhead costs
Indirect materials	$	44,250
Indirect labor		177,750
Power		43,000
Repairs and maintenance		96,000
Depreciation—Building		24,000
Depreciation—Machinery		75,000
Taxes and insurance		11,500
Supervision		89,000			560,500
Total costs				$	1,550,725

Problem 21-3A Part 1&2

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.

Problem 21-3A Part 3

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
4. Compute the direct labor cost variance, including its rate and efficiency variances.

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

5. Prepare a detailed overhead variance report that shows the variances for individual items of overhead.

Answer 1

1&2. Flexible Overhead Budgets for October
	Levels of Activity
	65%	75%	85%
Expected Production Units	17,333	20,000	22,667
Variable Overheads:
Indirect Material	39,000	45,000	51,000
Indirect Labor	156,000	180,000	204,000
Power	39,000	45,000	51,000
Repairs and Maintenance	78,000	90,000	102,000
Total Variable Overheads (1)	312,000	360,000	408,000
Fixed Overheads
Depreciation-Building	24,000	24,000	24,000
Depreciation-Machinery	80,000	80,000	80,000
Taxes and Insurance	12,000	12,000	12,000
Supervision	79,000	79,000	79,000
Total Fixed Overheads (2)	195,000	195,000	195,000
Total Overheads Costs(1+2)	507,000	555,000	603,000

3.Direct Material Cost Variance
Price Variance:
Actual Price (per lb)	5.10
Standard Price (per lb)	5.00
Variance	0.10
Actual Quantity (lb)	× 91,000
Direct Material Price Variance		$9,100	U
Quantity Variance:
Actual Quantity (lb)	91,000
Standard Quantity (lb)	120,000
Variance	29,000
Standard Price per (lb)	× 5.00
Direct Material Quantity Variance		$145,000	F
Total Direct Material Cost Variance		$135,900	F
Actual output at 75% level of activity = 20,000 units
SQ for Actual output = 20,000 units × 6 lb= 120,000 lb

3. Direct Labor Cost Variance
Rate Variance:
Actual Rate per hour	17.25
Standard Rate per hour	17.00
Variance	0.25
Actual hours	× 30,500
Direct Labor Rate Variance		$7,625	U
Time Variance:
Actual Hours	30,500
Standard Hours	30,000
Variance	500
Standard Rate per hour	× 17.00
Direct Labor Efficiency Variance		$8,500	U
Total Direct Labor Cost Variance		$16,125	U
SH for Direct Labor = $555,000 ÷ 1$8.5 per hr = 30,000 hrs

Factory Overhead Variance (at 75% Activity Level)
Variable Overhead Variance	Std. Cost	Act. Cost	Variance
Indirect Material Cost Variance =	45,000	44,250	750 F
Indirect Labor Cost Variance	180,000	177,750	2,250 F
Power Cost Variance	45,000	43,000	2,000 F
Repairs $ Maintenance	90,000	96,000	6,000 U
Total Variable Overhead (1)	$360,000	$361,000	$1,000 U
Fixed Overhead Variance
Depreciation-Building	24,000	24,000	0
Depreciation-Machinery	80,000	75,000	5,000 F
Taxes and Insurance	12,000	11,500	500 F
Supervision	79,000	89,000	10,000 U
Total Fixed Overheads (2)	$195,000	$199,500	$4,500 U
Total Overheads (1+2)	$555,000	$560,500	$5,500 U