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

	Planning Budget	Activity Varaince	F/U	Flexible Budget	Spending Variance	F/U	Actual Results
Hours	8700			9080			9080
Variable costs:
Indirect factory wages	40020	1748	U	41768	-500	U	42268
				(4.6*9080)
Power and light	20880	912	U	21792	-272	U	22064
				(2.4*9080)
Indirect materials	17400	760	U	18160	-540	U	18700
				(2*9080)
Total variable cost	78300	3420		81720	-1312		83032
Supervisory salaries	19800	0		19800	0		19800
Depreciation of plant and equipment	35700	0		35700	0		35700
Insurance and property taxes	18450	0		18450	0		18450
Total fixed cost	73950	0		73950	0		73950
Total factory overhead cost	152250	3420	U	155670	-1312	U	156982
Budgeted cost per unit:
Indirect factory wages per unit = 40020/8700 = $4.6
Power and light cost per unit = 20880/8700 = $2.4
Indirect materials cost per unit = 17400/8700 = $2