k 5 Help Save & Ch James Corp. applies overhead on the basis of direct labor hou

Question

k 5 Help Save & Ch James Corp. applies overhead on the basis of direct labor hours. For the month of May, the company planned production of 8,000 units (80% of its production capacity of 10,000 units) and prepared the following overhead budget overhead Budget Production in units Standard direct labor hours Budgeted overhead 80 8,000 22,000 Variable overhead costs Indirect labor Pover $13,200 22,000 8,800 Fixed cost Rent of factory building Depreciation-Machinery Supervisory Total fixed costs 18,000 10,300 17,900 During May, the company operated at 90% capacity (9,000 units) and incurred the following octal overhead costs 24,500

Explanation / Answer

1 Overhead controllable variance=Actual overhead-Standard overhead Total actual overhead=102260 Standard overhead: Budgeted fixed overhead=46200 Standard variable overhead per unit=48400/8000=$6.05 per unit Variable overhead for 9000 units=9000*6.05=54450 Total standard overhead=46200+54450=100650 Overhead controllable variance=102260-100650=1610 Unfavorable 2 Overhead volume variance=Budgeted fixed overhead-Fixed overhead applied Fixed overhead applied=Actual activity level*Fixed overhead per planned units=9000*(46200/8000)=9000*5.775=51975 Overhead volume variance=Budgeted fixed overhead-Fixed overhead applied=46200-51975=5775 Favorable 3 Overhead cost variance report Budgeted productio for the month 8000 units Actual production for the month 9000 units Budget (at actual production) Actual Variances: Favorable Variances: Unfavorable Variable overhead: Indirect materials 14850 13200 1650 0 (13200/8000)*9000 Indirect labor 24750 24500 250 0 (22000/8000)*9000 Power 9900 9900 0 0 (8800/8000)*9000 Maintenance 4950 5560 0 610 (4400/8000)*9000 Total variable overhead 54450 53160 Fixed overhead: Rent of factory building 18000 18000 0 0 Depreciatiion machinery 10300 10300 0 0 Supervisory salaries 17900 20800 0 2900 Total fixed overhead 46200 49100 Total controllable variance 1900 3510 Net controllable variance-unfavorable 1610 Volume variance-favorable 5775 Total overhead cost variance-favorable 4165

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