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.

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 hours, and the factory overhead costs incurred were indirect factory wages, $42,268; power and light, $22,064; 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 a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

Answer 1

Solution:

Computation of standard variable overhead per our
Particulars	Budgeted Cost	Budgted DLH	Overhead Rate
Indirect factory wages	$40,020.00	8700	$4.60
Power and light	$20,880.00	8700	$2.40
Indirect material	$17,400.00	8700	$2.00

Tiger Equipment Inc.
Welding Department
Factory overhead flexible budget report
For the month ended
Particulars	Budget	Actual Cost	Variance	Favorable / Unfavorable / Neither favorable nor unfavorable
Variable Costs:
Indirect materials	$41,768.00	$42,268.00	$500.00	Unfavorable
Indirect labor	$21,792.00	$22,064.00	$272.00	Unfavorable
Maintenance Expenses	$18,160.00	$18,700.00	$540.00	Unfavorable
Total variable costs	$81,720.00	$83,032.00	$1,312.00	Unfavorable
Fixed Costs:
Supervisory Salary	$19,800.00	$19,800.00	$0.00	Neither Favorable nor Unfavorable
Depreciation of Plant and Equipment	$35,700.00	$35,700.00	$0.00	Neither Favorable nor Unfavorable
Insurance and Property Taxes	$18,450.00	$18,450.00	$0.00	Neither Favorable nor Unfavorable
Total Fixed Costs	$73,950.00	$73,950.00	$0.00	Neither Favorable nor Unfavorable
Total Costs	$155,670.00	$156,982.00	$1,312.00	Unfavorable