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