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.

(Not 800)

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 Prepare an overhead variance report at the actual activity level of 9,000 units. Classify as favorable or unfavorable BLAZE CORP Overhead Variance Report For Month Ended March 31 Expected production volume Production level achieved Volume variance 80% of capacity 90% of capacity 6,000 Favorable Controllable Variance Flexible Budget Actual Results Variances Fav./ Unfav Variable overhead costs 1,250 Favorable 2,000 Favorable Indirect materials Indirect labor Power Maintenance 11,250 18,000 4,500 2,250 10,000 16,000 4,500 3,000 o variance 750 Unfavorable 36,000 33,500 2,500 Favorable Fixed overhead costs Rent of factory building Depreciation-Machinery Taxes and insuran Supervisory salaries 12,000 20,000 2,400 13,600 12,000 19,200 3,000 14,000 U[No variance Favorable ce nfavorable 400 Unfavorable 200 Unfavorable 48,000 84,000 $ 48,200 Total overhead costs 81,700 $ 2,300 Favorable KRequired 2 Required 3

Explanation / Answer

Hi,

Hope the query is on third question only.

The variance analysis is as below:

Overhead variance report at 9000 Fixed budget cost/Per unit Flexible budget Actuals Variance Fav/Un fav Sales volume 8000 9000 9000 Standard direct labor hours 32000             4.00 36000 Indirect materials 10,000             1.25 11250 10,000 1,250 Fav Indirect labor 16,000             2.00 18000 16,000 2,000 Fav Power 4,000             0.50 4500 4,500 0 No variance Maintenance 2,000             0.25 2250 3,000 -750 Un fav Total variable costs 32,000             4.00 36000 33,500 2,500 Fav Fixed overhead costs Rent of factory building 12,000 12,000 12,000 0 No variance Depreciation—Machinery 20,000 20,000 19,200 800 Fav Taxes and insurance 2,400 2,400 3,000 -600 Un Fav Supervisory salaries 13,600 13,600 14,000 -400 Un Fav Total fixed costs 48,000 48,000 48,200 -200 Un Fav Total overhead costs 80,000 2.5 80,000 81,700 -1,700 Un Fav

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