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

Question

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

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.

15,000

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

Direct materials (4.0 Ibs. @ $5.00 per Ib.) $ 20.00 Direct labor (1.7 hrs. @ $12.00 per hr.) 20.40 Overhead (1.7 hrs. @ $18.50 per hr.) 31.45 Total standard cost $ 71.85 Problem 23-5A Part 1&2 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 ANTUAN COMPANY Flexible Overhead Budgets For Month Ended October 31 Flexible Budget Variable Amount Total Fixed 65% of capacity Flexible Budget for 75% of capacity 85% of capacity per Unit Cost Sales (n units) Variable costs Fixed costs Total overhead costs

Explanation / Answer

(1) Preparation of flexible overhead budget for the month of October.We have, ANTUAN COMPANY Flexible overhead budgets For the month ended October 31 Flexible Budget Flexible Budget for Particulars Per Unit Total Fixed cost 65% of capacity 75% of capacity 85% of capacity Sales( in units) 20,000 13,000 15,000 17,000 Variable cost: Indirect materials 1 13,000 15,000 17,000 Indirect Labour 6 78,000 90,000 1,02,000 Power 1 13,000 15,000 17,000 Repair and Maintenace 2 26,000 30,000 34,000 Total variable cost(A) 10 1,30,000 1,50,000 1,70,000 Fixed costs: Depreciation—building 25,000 25,000 25,000 25,000 Depreciation—machinery 71,000 71,000 71,000 71,000 Taxes and insurance 18,000 18,000 18,000 18,000 Supervision 2,07,750 2,07,750 2,07,750 2,07,750 Total Fixed costs(B) 3,21,750 3,21,750 3,21,750 3,21,750 Total overhead costs(A + B) 4,51,750 4,71,750 4,91,750 Note1: Tota fixed cost is not change at particular time periods. So, it is fixed for all budget level. (2) Computation of direct material cost variance, inculding its price and quantity variance. Particulars Direct material price variance (Actual price - Standard price) Actual quantity (5.20 - 5.00)61500 12300 Unfavourable Direct material quantity variance (Actual units - Standard units) Standard price (61500 - (4*15000)) 5.00 7500 Unfavorable Direct material cost variance Actual cost of materials - Standard cost of materials 319800-300000 19800 Unfavorable (3) Computation of direct labour cost variance, including its rate and efficiency variances.We have, Particulars Direct labour rate variances (Actual rate - Standard rate) Actual labour hours (12.30 - 12.00)24,000 7200 Unfavourable Dierct labour efficiency variances (Actual hours - Standard hours) Standard price (24000 - (1.7*15000)) 12 18000 Unfavourable Direct labour cost variances Actual cost of labours - Standard cost of labours 295200 - 306000 10800 favourable

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