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	$44,370.00
3	Power and light	21,750.00
4	Indirect materials	17,400.00
5	Total variable cost		$83,520.00
6	Fixed costs:
7	Supervisory salaries	$19,200.00
8	Depreciation of plant and equipment	35,200.00
9	Insurance and property taxes	19,550.00
10	Total fixed cost		73,950.00
11	Total factory overhead cost		$157,470.00

During May, the department operated at 9,120 standard hours, and the factory overhead costs incurred were indirect factory wages, $47,092; power and light, $22,500; indirect materials, $18,850; supervisory salaries, $19,200; depreciation of plant and equipment, $35,200; and insurance and property taxes, $19,550.

Prepare a factory overhead cost variance report for May. To be useful for cost control, the budgeted amounts should be based on 9,120 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.

Answer 1

• All working forms part of the answer
• Variable cost changes with changes in the level activity.
• Calculation of Variable cost per hour

Variable costs:	Total	per hour [total/8700]
Indirect factory wages	$                    44,370.00	$                               5.10
Power and light	$                    21,750.00	$                               2.50
Indirect materials	$                    17,400.00	$                               2.00
Total variable cost	$                    83,520.00	$                               9.60

• Unfavourable Variance: Budgeted cost is LESS than Actual cost
  Favourable Variance: Budgeted cost is MORE than Actual cost
• Answer

	TIGER EQUIPMENT INC.
	Factory Overhead Cost Budget—Welding Department
	For the Month Ended May 31
1	Variable costs:	Flexible Budget data For 9120 hours	Actual data for 9120 hours	Variances
2	Indirect factory wages	$                    46,512.00	$                      47,092.00	$                 580.00	Unfavourable
3	Power and light	$                    22,800.00	$                      22,500.00	$                 300.00	Favourable
4	Indirect materials	$                    18,240.00	$                     18,850.00	$                 610.00	Unfavourable
5	Total variable cost	$                    87,552.00	$                      88,442.00	$                 890.00	Unfavourable
6	Fixed costs:			$                          -	None/ Favourable
7	Supervisory salaries	$                    19,200.00	$                      19,200.00	$                          -	None/ Favourable
8	Depreciation of plant and equipment	$                    35,200.00	$                      35,200.00	$                          -	None/ Favourable
9	Insurance and property taxes	$                    19,550.00	$                      19,550.00	$                          -	None/ Favourable
10	Total fixed cost	$                    73,950.00	$                      73,950.00	$                          -	None/ Favourable
11	Total factory overhead cost	$                 1,61,502.00	$                  1,62,392.00	$                 890.00	Unfavourable