Question

Tiger Equipment Inc., a manufacturer of construction equipment, prepared the following factory overhead cost budget for the Welding Department for May of the current year. The company expected to operate the department at 100% of normal capacity of 8,700 hours.

TIGER EQUIPMENT INC.

Factory Overhead Cost Budget-Welding Department

For the Month Ended May 31

1	Variable costs:
2	Indirect factory wages	$40,020.00
3	Power and light	20,880.00
4	Indirect materials	17,400.00
5	Total variable cost		$78,300.00
6	Fixed costs:
7	Supervisory salaries	$19,800.00
8	Depreciation of plant and equipment	35,700.00
9	Insurance and property taxes	18,450.00
10	Total fixed cost		73,950.00
11	Total factory overhead cost		$152,250.00

During May, the department operated at 9,080 standard hours. The factory overhead costs incurred were indirect factory wages, $42,268; power and light, $21,520; indirect materials, $18,700; supervisory salaries, $19,800; depreciation of plant and equipment, $35,700; and insurance and property taxes, $18,450.

	Required:
	Prepare a factory overhead cost variance report for May. To be useful for cost control, the budgeted amounts should be based on 9,080 hours. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. Enter all variances as positive amounts.

Amount Descriptions

Amount Descriptions
Depreciation of plant and equipment
Indirect factory wages
Indirect materials
Insurance and property taxes
Net controllable variance-favorable
Net controllable variance-unfavorable
Power and light
Supervisory salaries
Total controllable variances
Total factory overhead cost
Total factory overhead cost variance-favorable
Total factory overhead cost variance-unfavorable
Total fixed factory overhead cost
Total variable factory overhead cost
Volume variance-favorable
Volume variance-unfavorable

Factory Overhead Cost Variance Report

Prepare a factory overhead cost variance report for May. To be useful for cost control, the budgeted amounts should be based on 9,080 hours hours. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. Enter all variances as positive amounts.

TIGER EQUIPMENT INC.

Factory Overhead Cost Variance Report-Welding Department

For the Month Ended May 31

1	Normal capacity for the month		8,700 hours
2	Actual production for the month		9,080 hours
3
4		Actual	Budget	Variances: Unfavorable	Variances: Favorable
5	Variable factory overhead costs:
6
7
8
9
10	Fixed factory overhead costs:
11
12
13
14
15
16
17
18
19
20

Answer 1

	TIGER EQUIPMENT INC.
	Factory Overhead Cost Variance Report-Welding Department
	For the Month Ended May 31
1	Normal capacity for the month		8700 hours
2	Actual production for the month		9080 hours
3
4		Budget	Actual	Variances: Favorable	Variances: Unfavorable
5	Variable factory overhead costs:
6	Indirect factory wages	41768.00	42268.00		500.00
7	Power and light	21792.00	21520.00	272.00
8	Indirect materials	18160.00	18700.00		540.00
9	Total variable factory overhead cost	81720.00	82488.00
10	Fixed factory overhead costs:
11	Supervisory salaries	19800.00	19800.00
12	Depreciation of plant and equipment	35700.00	35700.00
13	Insurance and property taxes	18450.00	18450.00
14	Total fixed factory overhead cost	73950.00	73950.00
15	Total factory overhead cost	155670.00	156438.00
16	Total controllable variances			272.00	1040.00
17
18	Net controllable variance-unfavorable				768.00
19	Volume variance-favorable*				3230.00
20	Total factory overhead cost variance-favorable				2462.00

*Volume variance-favorable

Excess hours used over normal hours (9080 - 8700) = 380

Standard rate for fixed factory overhead = $73950/8700 = $8.50

Volume variance = 380 x $8.50 = $3230