Blaze Corp. applies overhead on the basis of direct labor hours. For the month o

Question

Blaze Corp. applies overhead on the basis of direct labor hours. For the month of March, the company planned production of 8,000 units (80% of its production capacity of 10,000 units) and prepared the following budget:

During March, the company operated at 90% capacity (9,000 units), and it incurred the following actual overhead costs.

1. Compute the overhead controllable variance.
2. Compute the overhead volume variance.
3. Prepare an overhead variance report at the actual activity level of 9,000 units.

Operating Levels Overhead Budget 80% Production in units 8,000 Standard direct labor hours 32,000 Budgeted overhead Variable overhead costs Indirect materials $ 10,000 Indirect labor 16,000 Power 4,000 Maintenance 2,000 Total variable costs 32,000 Fixed overhead costs Rent of factory building 12,000 Depreciation—Machinery 20,000 Taxes and insurance 2,400 Supervisory salaries 13,600 Total fixed costs 48,000 Total overhead costs $ 80,000 Required 1 Required 2 Required 3 Compute the overhead controllable variance. Classify as favorable or unfavorable. Controllable Variance Total actual overhead Flexible budget overhead Total Overhead controllable variance Required 1 Required 2 >

Explanation / Answer

Answer 1. Controllable Variance Total Actual Overhead      81,700.00 Flexible Budget Overhead Variable    36,000.00 Fixed    48,000.00 Total      84,000.00 Overhead Controllable Variance        2,300.00 Favourable Answer 2. Volume Variance Total Budgeted Fixed OH    48,000.00 Total Fixed Overhead Applied    54,000.00 Volume Variance      6,000.00 Favourable Answer 3. BLAZE CORP. Overhead Variance Report For Month Ended Mar 31 Expected Production Volume 80% of Capacity Production Level Achieved 90% of Capacity Volume Variance      6,000.00 Favourable Controllable Variance Flexible Budget Actual Results Variances Variable Overhead Costs: Indirect Materials    11,250.00      10,000.00        1,250.00 Favourable Indirect Labor    18,000.00      16,000.00        2,000.00 Favourable Power      4,500.00        4,500.00                     -   Maintenance      2,250.00        3,000.00            750.00 Unfavourable Total Variable Costs    36,000.00      33,500.00        2,500.00 Favourable Fixed Overhead Costs: Rent of Factory Building    12,000.00      12,000.00                     -   Favourable Depreciation - Machinery    20,000.00      19,200.00            800.00 Favourable Taxes & Insurance      2,400.00        3,000.00            600.00 Unfavourable Supervisory Salaries    13,600.00      14,000.00            400.00 Unfavourable Total Fixed Costs    48,000.00      48,200.00            200.00 Unfavourable Total Overhead Costs    84,000.00      81,700.00        2,300.00 Favourable

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