EX 23-19 factory overhead cost variance report

Tannin Products Inc. prepared the following factory overhead cost budget for the Trim Department for July 2014, during which it expected to use 20,000 hours for production:

Variable overhead cost:
Indirect factory labor $46,000
Power and light12,000
Indirect materials   20,000
Total variable overhead cost $ 78,000
Fixed overhead cost:
Supervisory salaries $54,500
Depreciation of plant and equipment 40,000
Insurance and property taxes    35,500
Total fixed overhead cost130,000
Total factory overhead cost$208,000






Tannin has available 25,000 hours of monthly productive capacity in the Trim Department under normal business conditions. During July, the Trim Department actually used 22,000 hours for production. The actual fixed costs were as budgeted. The actual variable overhead for July was as follows:

Actual variable factory overhead cost:

Indirect factory labor        $49,700
Power and light.               13,000
Indirect materials             24,000
Total variable cost           $86,700

Construct a factory overhead cost variance report for the Trim Department for July.

Answer:

TANNIN PRODUCTS INC. 
Factory Overhead Cost Variance Report—Trim Department 
For the Month Ended July 31, 2014 
Productive capacity for the month 25,000  hrs. 
Actual productive capacity used for the month 22,000  hrs. 
    B
udget 
(at actual 
production) 
 
Actual 
    
Indirect factory labor $  50,600 $  49,700 $   (900)  
Power and light 13,200 13,000 (200)  
Indirect materials 22,000 24,000  $  2,000 
Total variable factory     
overhead cost $ 85,800 $ 86,700   
Fixed factory overhead costs:     
Supervisory salaries $  54,500 $  54,500   
Depreciation of plant and     
equipment 40,000 40,000   
Insurance and property taxes 35,500 35,500   
Total fixed factory     
overhead cost $130,000 $130,000   
Total factory overhead cost $215,800 $216,700   
Total controllable variances   $(1,100) $ 2,000 
     
Net controllable variance—unfavorable    $ 900 
Volume variance—unfavorable:     
Idle hours at the standard rate for fixed factory overhead
2
:   
(25,000 hrs. – 22,000 hrs.) × $5.20    15,600 
Total factory overhead cost variance—unfavorable   $16,500 
     
The budgeted variable factory overhead costs are determined by multiplying 
22,000 hours by the variable factory overhead cost rate for each variable cost 
category. These rates are determined by dividing each budgeted amount 
(estimated at the beginning of the month) by the planned (budgeted) volume 
$50,600 = ($46,000 ÷ 20,000 hrs.) × 22,000 hrs. 
$13,200 = ($12,000 ÷ 20,000 hrs.) × 22,000 hrs. 
$22,000 = ($20,000 ÷ 20,000 hrs.) × 22,000 hrs. 
$130,000 
25,000 hrs. 
= $5.20 per hr. 

Alternative Computation of Overhead Variances 
Factory Overhead 
Actual costs 216,700 Applied costs 200,200 
Balance (underapplied)   16,500 [22,000 × ($3.90* + $5.20)] 
Actual 
Factory 
Overhead 
Budgeted Factory 
Overhead for Amount 
Produced 
$216,700 Variable cost (22,000 × $3.90)……………   $ 85,800 $200,200 
Fixed cost…………………………………   130,000 
Total………………………………………… $215,800 
$900 U $15,600 U 
Controllable   Volume 
Variance Variance 
$16,500 U 
Total Factory Overhead 
Cost Variance 
*$78,000 ÷ 20,000 hours budgeted at the beginning of the month