Question

James Corp. applies overhead on the basis of direct labor hours. For the month of May, the company planned production of 10,000 units (80% of its production capacity of 12,500 units) and prepared the following overhead budget:

	Operating Levels
Overhead Budget	80%
Production in units		10,000
Standard direct labor hours		27,000
Budgeted overhead
Variable overhead costs
Indirect materials	$	16,200
Indirect labor		27,000
Power		5,400
Maintenance		5,400
Total variable costs		54,000
Fixed overhead costs
Rent of factory building		23,000
Depreciation—Machinery		10,800
Supervisory salaries		14,800
Total fixed costs		48,600
Total overhead costs	$	102,600

During May, the company operated at 90% capacity (11,250 units) and incurred the following actual overhead costs:

Overhead costs (actual)
Indirect materials	$	16,200
Indirect labor		29,875
Power		6,075
Maintenance		6,710
Rent of factory building		23,000
Depreciation—Machinery		10,800
Supervisory salaries		18,200
Total actual overhead costs	$	110,860

1. Compute the overhead controllable variance and classify it as favorable or unfavorable.
2. Compute the overhead volume variance and classify it as favorable or unfavorable.
3. Prepare an overhead variance report at the actual activity level of 11,250 units.

Complete this question by entering your answers in the tabs below.

Compute the overhead controllable variance and classify it as favorable or unfavorable. (Indicate the effect of each variance by selecting for favorable, unfavorable, and no variance.)

	Controllable variance Total actual overhead $110,860 Flexible budget overhead Variable Fixed 48,600 Total 48,600 Overhead controllable variance Unfavorable

Compute the overhead volume variance and classify it as favorable or unfavorable. (Indicate the effect of each variance by selecting for favorable, unfavorable, and no variance. Do not round intermediate calculations.)

	Volume Variance Total budgeted fixed OH $48,600 Total fixed overhead applied Volume variance Favorable

Prepare an overhead variance report at the actual activity level of 11,250 units. Classify as favorable or unfavorable. (Indicate the effect of each variance by selecting for favorable, unfavorable, and no variance. Do not round intermediate calculations.)

JAMES CORP. Overhead Variance Report For Month Ended May 31 Expected production volume 80% of capacity Production level achieved 90% of capacity Volume variance Favorable Controllable Variance Flexible Budget Actual Results Variances Fav./Unfav. Variable overhead costs: Indirect materials Favorable Indirect labor Favorable Power No variance Maintenance Unfavorable Total variable costs Favorable Fixed overhead costs: Rent of factory building No variance Depreciation—Machinery No variance Supervisory salaries Total fixed costs Unfavorable Total overhead costs Unfavorable

Answer 1

Solution 1:
Controllable Variance
Total actual overhead		$110,860.00
Flexible Budget Overhead
Fixed	$48,600.00
Variable	$60,750.00
Total		$109,350.00
Overhead controllable variance		$1,510.00	Unfavorable
Solution 2:
Volume Variance
Total Budgeted Fixed overhead	$48,600.00
Total fixed overhead applied	$54,675.00
Volume Variance	$6,075.00	Favorable

Solution 3:
James Corp
Overhead variance Report
For the month ended May 31
Expected production volume	80% of capacity
Production level achieved	90% of capacity
Volume variance	$6,075.00	Favorable
Controllable variance	Flexible budget	Actual results	Variances	Fav/Unfav.
Variable overhead costs:
Indirect material	$18,225.00	$16,200.00	$2,025.00	Favorable
Indirect labor	$30,375.00	$29,875.00	$500.00	Favorable
Power	$6,075.00	$6,075.00	$0.00	No Variance
Maintenance	$6,075.00	$6,710.00	$635.00	Unfavorable
Total variable costs	$60,750.00	$58,860.00	$1,890.00	Favorable
Fixed overhead costs:
Rent of factory building	$23,000.00	$23,000.00	$0.00	No Variance
Depreciation - Machinery	$10,800.00	$10,800.00	$0.00	No Variance
Supervisory salaries	$14,800.00	$18,200.00	$3,400.00	Unfavorable
Total fixed costs	$48,600.00	$52,000.00	$3,400.00	Unfavorable
Total overhead costs	$109,350.00	$110,860.00	$1,510.00	Unfavorable