Question

Problem 08-3A Flexible budget preparation; computation of materials, labor, and overhead variances; and overhead variance report LO P1, P2, P3, P4

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Antuan Company set the following standard costs for one unit of its product.

Direct materials (4.0 Ibs. @ $6.00 per Ib.)	$	24.00
Direct labor (1.9 hrs. @ $12.00 per hr.)		22.80
Overhead (1.9 hrs. @ $18.50 per hr.)		35.15
Total standard cost	$	81.95

The predetermined overhead rate ($18.50 per direct labor hour) is based on an expected volume of 75% of the factory’s capacity of 20,000 units per month. Following are the company’s budgeted overhead costs per month at the 75% capacity level.

Overhead Budget (75% Capacity)
Variable overhead costs
Indirect materials	$	15,000
Indirect labor		75,000
Power		15,000
Repairs and maintenance		30,000
Total variable overhead costs				$	135,000
Fixed overhead costs
Depreciation—Building		24,000
Depreciation—Machinery		72,000
Taxes and insurance		17,000
Supervision		279,250
Total fixed overhead costs					392,250
Total overhead costs				$	527,250

The company incurred the following actual costs when it operated at 75% of capacity in October.

Direct materials (61,500 Ibs. @ $6.10 per lb.)				$	375,150
Direct labor (19,000 hrs. @ $12.10 per hr.)					229,900
Overhead costs
Indirect materials	$	41,300
Indirect labor		176,050
Power		17,250
Repairs and maintenance		34,500
Depreciation—Building		24,000
Depreciation—Machinery		97,200
Taxes and insurance		15,300
Supervision		279,250			684,850
Total costs				$	1,289,900
Required: 1&2. Prepare flexible overhead budgets for October showing the amounts of each variable and fixed cost at the 65%, 75%, and 85% capacity levels and classify all items listed in the fixed budget as variable or fixed. 3. Compute the direct materials cost variance, including its price and quantity variances. (Indicate the effect of each variance by selecting for favorable, unfavorable, and No variance.) Compute the direct labor cost variance, including its rate and efficiency variances. (Indicate the effect of each variance by selecting for favorable, unfavorable, and No variance. Round "Rate per hour" answers to two decimal places.) Prepare a detailed overhead variance report that shows the variances for individual items of overhead. (Indicate the effect of each variance by selecting for favorable, unfavorable, and No variance.)

Answer 1

Solution 1 & 2:

Antuan company
Flexible Overhead Budget
For month ended Oct 31
Particulars	Flexible Budget	Flexible Budget for
Variable amount per unit	Total fixed cost	65% of capacity	75% of capacity	85% of capacity
Sales (In units)			13000	15000	17000
Variable overhead costs:
Indirect materials	$1.00		$13,000.00	$15,000.00	$17,000.00
Indirect labor	$5.00		$65,000.00	$75,000.00	$85,000.00
Power	$1.00		$13,000.00	$15,000.00	$17,000.00
Repairs and maintenance	$2.00		$26,000.00	$30,000.00	$34,000.00
Total variable costs	$9.00		$117,000.00	$135,000.00	$153,000.00
Fixed overhead costs:
Depreciation - Building		$24,000.00	$24,000.00	$24,000.00	$24,000.00
Depreciation - Machinery		$72,000.00	$72,000.00	$72,000.00	$72,000.00
Taxes and Insurance		$17,000.00	$17,000.00	$17,000.00	$17,000.00
Supervision		$279,250.00	$279,250.00	$279,250.00	$279,250.00
Total fixed costs		$392,250.00	$392,250.00	$392,250.00	$392,250.00
Total overhead costs			$509,250.00	$527,250.00	$545,250.00

Solution 3:

Direct Material Cost Variance
Actual Cost		Standard cost for actual quantity		Standard Cost
AQ *	AP =			AQ *	SP =			SQ *	SP =
61500	$6.10	$375,150.00		61500	$6.00	$369,000.00		60000	$6.00	$360,000.00
	$6,150 U				$9,000 U
			Direct Material Price Variance				Direct Material Qty variance
Direct material price variance	$6,150.00	U
Direct material quantity variance	$9,000.00	U
Direct material cost variance	$15,150.00	U

Solution 4:

Direct Labor Cost Variance
Actual Cost		Standard cost for actual quantity		Standard Cost
AQ *	AP =			AQ *	SP =			SQ *	SP =
19000	$12.10	$229,900.00		19000	$12.00	$228,000.00		28500	$12.00	$342,000.00
	$1,900 U				$114,000 F
			Direct Labor rate Variance				Direct Labor Efficiency Variance
Direct Labor Rate variance	$1,900.00	U
Direct Labor Efficiency variance	$114,000.00	F
Direct labor cost variance	$112,100.00	F

solution 5:

Antuan Company
Overhead variance Report
For the month ended October 31
Expected production volume	75% of capacity
Production level achieved	75% of capacity
Volume variance	$0.00
Controllable variance	Flexible budget	Actual results	Variances	Fav/Unfav.
Variable overhead costs:
Indirect materials	$15,000.00	$41,300.00	$26,300.00	Unfavorable
Indirect labor	$75,000.00	$176,050.00	$101,050.00	Unfavorable
Power	$15,000.00	$17,250.00	$2,250.00	Unfavorable
Repairs and maintenance	$30,000.00	$34,500.00	$4,500.00	Unfavorable
Total variable costs	$135,000.00	$269,100.00	$134,100.00	Unfavorable
Fixed overhead costs:
Depreciation - Building	$24,000.00	$24,000.00	$0.00
Depreciation - Machinery	$72,000.00	$97,200.00	$25,200.00	Unfavorable
Taxes and Insurance	$17,000.00	$15,300.00	$1,700.00	Favorable
Supervision	$279,250.00	$279,250.00	$0.00
Total fixed costs	$392,250.00	$415,750.00	$23,500.00	Unfavorable
Total overhead costs	$527,250.00	$684,850.00	$157,600.00	Unfavorable