Question

In: Accounting

James Corp. applies overhead on the basis of direct labor hours. For the month of May,...

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 20,000
Budgeted overhead
Variable overhead costs
Indirect materials $ 15,000
Indirect labor 20,000
Power 5,000
Maintenance 2,000
Total variable costs 42,000
Fixed overhead costs
Rent of factory building 15,000
Depreciation—Machinery 11,200
Supervisory salaries 9,800
Total fixed costs 36,000
Total overhead costs $ 78,000


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

Overhead costs (actual)
Indirect materials $ 15,000
Indirect labor 22,400
Power 5,625
Maintenance 3,050
Rent of factory building 15,000
Depreciation—Machinery 11,200
Supervisory salaries 12,500
Total actual overhead costs $ 84,775


1. Compute the overhead controllable variance and classify it as favorable or unfavorable.
2. Compute the overhead volume variance and classify it as favorable or unfavorable.
3. Prepare an overhead variance report at the actual activity level of 11,250 units.

Solutions

Expert Solution

Solution 1 and 2:

Controllable Variance
Total actual overhead $84,775.00
Flexible Budget Overhead
Fixed $36,000.00
Variable $47,250.00
Total $83,250.00
Overhead controllable variance $1,525.00 Unfavorable
Volume Variance
Total Budgeted Fixed overhead $36,000.00
Total fixed overhead applied $40,500.00
Volume Variance $4,500.00 Favorable

SOlution 3:

James Corp
Overhead variance Report
For the month ended May 31
Expected production volume 80% of capacity
Production level achieved 90% of capacity
Volume variance $4,500.00 Favorable
Controllable variance Flexible budget Actual results Variances Fav/Unfav.
Variable overhead costs:
Indirect material $16,875.00 $15,000.00 $1,875.00 Favorable
Indirect labor $22,500.00 $22,400.00 $100.00 Favorable
Power $5,625.00 $5,625.00 $0.00 No Variance
Maintenance $2,250.00 $3,050.00 $800.00 Unfavorable
Total variable costs $47,250.00 $46,075.00 $1,175.00 Favorable
Fixed overhead costs:
Rent of factory building $15,000.00 $15,000.00 $0.00 No Variance
Depreciation - Machinery $11,200.00 $11,200.00 $0.00 No Variance
Supervisory salaries $9,800.00 $12,500.00 $2,700.00 Unfavorable
Total fixed costs $36,000.00 $38,700.00 $2,700.00 Unfavorable
Total overhead costs $83,250.00 $84,775.00 $1,525.00 Unfavorable

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