Factory Overhead Cost Variance Report
Tannin Products Inc. prepared the following factory overhead cost budget for the Trim Department for July of the current year, during which it expected to use 10,000 hours for production:
| Variable overhead costs: | ||
| Indirect factory labor | $24,000 | |
| Power and light | 7,500 | |
| Indirect materials | 17,000 | |
| Total variable overhead cost | $ 48,500 | |
| Fixed overhead costs: | ||
| Supervisory salaries | $43,890 | |
| Depreciation of plant and equipment | 11,550 | |
| Insurance and property taxes | 21,560 | |
| Total fixed overhead cost | 77,000 | |
| Total factory overhead cost | $125,500 |
Tannin has available 14,000 hours of monthly productive capacity in the Trim Department under normal business conditions. During July, the Trim Department actually used 9,000 hours for production. The actual fixed costs were as budgeted. The actual variable overhead for July was as follows:
| Actual variable factory overhead costs: | |
| Indirect factory labor | $21,060 |
| Power and light | 6,630 |
| Indirect materials | 16,100 |
| Total variable cost | $43,790 |
Construct a factory overhead cost variance report for the Trim Department for July. Enter all amounts as positive numbers. If an amount box does not require an entry, leave it blank. Round your interim computations to the nearest cent, if required.
| Tannin Products Inc. | ||||
| Factory Overhead Cost Variance Report-Trim Department | ||||
| For the Month Ended July 31 | ||||
| Productive capacity for the month 14,000 hrs. | ||||
| Actual productive capacity used for the month 9,000 hrs. | ||||
| Budget (at actual production) | Actual | Favorable Variances | Unfavorable Variances | |
| Variable factory overhead costs: | ||||
| Indirect factory labor | $ | $ | $ | |
| Power and light | ||||
| Indirect materials | $ | |||
| Total variable factory overhead cost | $ | $ | ||
| Fixed factory overhead costs: | ||||
| Supervisory salaries | $ | $ | ||
| Depreciation of plant and equipment | ||||
| Insurance and property taxes | ||||
| Total fixed factory overhead cost | $ | $ | ||
| Total factory overhead cost | $ | $ | ||
| Total controllable variances | $ | $ | ||
| $ | ||||
| Idle hours at the standard rate for fixed factory overhead | ||||
| $ | ||||
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| Category | Total Pooled Cost | Types of Costs | Cost Driver | |||
| Unit | $ | 705,200 | Indirect labor wages, supplies, factory utilities, machine maintenance | Machine hours | ||
| Batch | 905,300 | Materials handling, inventory storage, labor for setups,packaging, labeling and shipping, scheduling | Number of production orders | |||
| Product | 211,300 | Research and development | Time spent by research department | |||
| Facility | 418,200 | Rent, general utilities, maintenance, facility depreciation, admin. salaries | Square footage | |||
Additional data for each of the product lines
follow:
| Commercial | Home | Miniature | Total | ||||||||||||
| Direct materials cost | $ | 36.70 | /unit | $ | 24.60 | /unit | $ | 30.30 | /unit | — | |||||
| Direct labor cost | $ | 14.00 | /hour | $ | 14.00 | /hour | $ | 18.80 | /hour | — | |||||
| Number of labor hours | 7,000 | 12,900 | 2,500 | 22,400 | |||||||||||
| Number of machine hours | 10,000 | 49,000 | 27,000 | 86,000 | |||||||||||
| Number of production orders | 290 | 1,800 | 910 | 3,000 | |||||||||||
| Research and development time | 10 | % | 17 | % | 73 | % | 100 | % | |||||||
| Number of units | 14,000 | 48,000 | 13,000 | 75,000 | |||||||||||
| Square footage | 15,000 | 55,000 | 12,000 | 82,000 | |||||||||||
Required
Determine the total cost and cost per unit for each product line, assuming that an ABC system is used to allocate overhead costs. Determine the combined cost of all three product lines.
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Lower-of-Cost-or-Market Inventory
On the basis of the following data:
| Product |
Inventory |
Cost per |
Market Value per Unit |
| Model A | 12 | $106 | $102 |
| Model B | 45 | 84 | 70 |
| Model C | 36 | 254 | 243 |
| Model D | 31 | 85 | 88 |
| Model E | 41 | 132 | 148 |
Determine the value of the inventory at the lower of cost or market. Assemble the data in the form illustrated in Exhibit 9.
| Inventory at the Lower of Cost or Market | |||
| Product | Total Cost | Total Market | Lower of Total Cost or Total Market |
| A | $ | $ | $ |
| B | |||
| C | |||
| D | |||
| E | |||
| Total | $ | $ | $ |
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1. The long run average total cost shows what happens to average (per unit) total cost as a firm grows in size (adds more capital or increases its plant size). True or false?
2. In the short run, at least one input is variable and one input is fixed. True or false?
3. If marginal product is less than average product, average product must be falling. True or false?
4. In the long run, all inputs are variable. True or false?
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How does the break-even point move when changes occur in;
a. Variable cost
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2)
Gable Company uses three activity cost pools. Each pool has a
cost driver. Information for Gable Company follows:
| Activity Cost Pools | Total Cost of Pool | Cost Driver | Estimated Cost Driver | ||
| Machining | $ | 380,120 | Number of machine hours | 88,400 | |
| Designing costs | 86,400 | Number of design hours | 9,000 | ||
| Setup costs | 74,672 | Number of batches | 525 | ||
Suppose that Gable Company manufactures three products, A, B, and
C. Information about these products follows:
| Product A | Product B | Product C | |
| Number of machine hours | 34,000 | 44,000 | 10,400 |
| Number of design hours | 3,600 | 2,000 | 3,400 |
| Number of batches | 60 | 180 | 285 |
Required:
1. Using activity proportions, determine the amount of
overhead assigned to each product.
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