Question

Tiger Equipment Inc., a manufacturer of construction equipment, prepared the following factory overhead cost budget for the Welding Department for May of the current year. The company expected to operate the department at 100% of normal capacity of 7,800 hours.


Variable costs:
Indirect factory wages $30,240
Power and light 20,160
Indirect materials 16,800
Total variable cost $67,200
Fixed costs:
Supervisory salaries $20,000
Depreciation of plant and equipment 36,200
Insurance and property taxes 15,200
Total fixed cost 71,400
Total factory overhead cost $138,600

During May, the department operated at 8,860 standard hours, and the factory overhead costs incurred were indirect factory wages, $32,400; power and light, $21,000; indirect materials, $18,250; supervisory salaries, $20,000; depreciation of plant and equipment, $36,200; and insurance and property taxes, $15,200.

Required:
Prepare a factory overhead cost variance report for May. To be useful for cost control, the budgeted amounts should be based on 8,860 hours.

Answer 1

Answer:

Tiger Equipment Inc.

Welding Department

Factory Overhead Cost Variance Report for May:

                                                                  Budget

                                                         Normal      Flexible    Actual  Variance

Capacity (hours) =                             7,800         8,860      8,860       0

Variable costs:

Indirect factory wages                     $30,240   $34,350   $32,400   $1,950 F

Power and light                                  20,160      22,900     21,000      1,900 F

Indirect materials                               16,800        19,083     18,250        833 F

Total variable cost                          $67,200     $76,333   $71,650  $4,683 F

Fixed costs:

Supervisory salaries                       $20,000   $20,000   $20,000     $0

Depreciation of plant & equipment 36,200     36,200      36,200       0

Insurance and property taxes          15,200      15,200       15,200       0

Total fixed cost                                  71,400      71,400      $71,400     $0

Total factory overhead cost        $138,600  $147,733   $143,050   $4,683 F

Explanation:

a) Data and Calculations:

                                                         Normal    

Capacity =                                       7,800 hours

Variable costs:

Indirect factory wages                     $30,240

Power and light                                  20,160

Indirect materials                               16,800

Total variable cost                          $67,200

Fixed costs:

Supervisory salaries                       $20,000

Depreciation of plant & equipment 36,200

Insurance and property taxes          15,200

Total fixed cost                                  71,400

Total factory overhead cost        $138,600

Flexible costs:

Indirect factory wages       $30,240 /7,800 * 8,860 = $34,350

Power and light                     20,160 /7,800 * 8,860 = $ 22,900

Indirect materials                  16,800  /7,800 * 8,860 = $19,083

                                                                  Budget

                                                         Normal      Flexible    Actual  Variance

Capacity (hours) =                             7,800         8,860      8,860       0

Variable costs:

Indirect factory wages                     $30,240   $34,350   $32,400   $1,950 F

Power and light                                  20,160      22,900     21,000      1,900 F

Indirect materials                               16,800        19,083     18,250        833 F

Total variable cost                          $67,200     $76,333   $71,650  $4,683 F

Fixed costs:

Supervisory salaries                       $20,000   $20,000   $20,000     $0

Depreciation of plant & equipment 36,200     36,200      36,200       0

Insurance and property taxes          15,200      15,200       15,200       0

Total fixed cost                                  71,400      71,400      $71,400     $0

Total factory overhead cost        $138,600  $147,733   $143,050   $4,683 F