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		30,000
Budgeted overhead
Variable overhead costs
Indirect materials	$	21,000
Indirect labor		30,000
Power		6,000
Maintenance		3,000
Total variable costs		60,000
Fixed overhead costs
Rent of factory building		14,000
Depreciation—Machinery		11,100
Supervisory salaries		28,900
Total fixed costs		54,000
Total overhead costs	$	114,000

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

Overhead Costs
Indirect materials	$	21,000
Indirect labor		33,300
Power		6,750
Maintenance		4,025
Rent of factory building		14,000
Depreciation—Machinery		11,100
Supervisory salaries		32,600
Total actual overhead costs	$	122,775

1. Compute the overhead controllable variance.
2. Compute the overhead volume variance.
3. Prepare an overhead variance report at the actual activity level of 11,250 units.

Answer 1