Question

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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. @ $10.00 per hr.)		18.00
Overhead (1.8 hrs. @ $18.50 per hr.)		33.30
Total standard cost	$	71.30

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	$	30,000
Indirect labor		75,000
Power		30,000
Repairs and maintenance		30,000
Total variable overhead costs				$	165,000
Fixed overhead costs
Depreciation—Building		25,000
Depreciation—Machinery		70,000
Taxes and insurance		17,000
Supervision		222,500
Total fixed overhead costs					334,500
Total overhead costs				$	499,500

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

Direct materials (60,500 Ibs. @ $5.20 per lb.)				$	314,600
Direct labor (19,000 hrs. @ $10.30 per hr.)					195,700
Overhead costs
Indirect materials	$	41,200
Indirect labor		176,600
Power		34,500
Repairs and maintenance		34,500
Depreciation—Building		25,000
Depreciation—Machinery		94,500
Taxes and insurance		15,300
Supervision		222,500			644,100
Total costs				$	1,154,400

rev: 03_28_2018_QC_CS-122864

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

Answer 1

			Overhead variance report
	Expected production volume=20000*75%=15000 units
	Production level achieved=20000*75%=15000 units
	Volume variance=15000-15000=0
				Flexible Budget	Actual results	Variance	Fav./ Unfav.	Reason
	Variable costs:
	Direct materials			300000	314600	14600	Unfav.	Since Actual cost > Expected cost
				(15000*20)
	Direct labor			270000	195700	74300	Fav.	Since Actual cost < Expected cost
				(15000*18)
	Indirect materials			30000	41200	11200	Unfav.	Since Actual cost > Expected cost
	Indirect labor			75000	176600	101600	Unfav.	Since Actual cost > Expected cost
	Power			30000	34500	4500	Unfav.	Since Actual cost > Expected cost
	Repairs and maintenance			30000	34500	4500	Unfav.	Since Actual cost > Expected cost
	Total			735000	797100	62100
	Fixed costs:
	Depreciation—Building			25000	25000	0	-	-
	Depreciation—Machinery			70000	94500	24500	Unfav.	Since Actual cost > Expected cost
	Taxes and insurance			17000	15300	1700	Fav.	Since Actual cost < Expected cost
	Supervision			222500	222500	0	-	-
	Total			334500	357300	22800