Question

James Corp. applies overhead on the basis of direct labor hours. For the month of May, the company planned production of 9,600 units (80% of its production capacity of 12,000 units) and prepared the following overhead budget: Operating Levels Overhead Budget sex Production in units 9,600 Standard direct labor hours 24,600 Budgeted overhead Variable overhead costs Indirect materials $18,000 Indirect labor 24,000 Power 5,400 Maintenance 3.800 Total variable costs Fixed overhead costs Rent of factory building 20,00 Depreciation-Machinery 10,500 Supervisory salaries 16.100 Total fixed costs 46,00 Total overhead costs $97,200 50,400 During May, the company operated at 90% capacity (10,800 units) and incurred the following actual overhead costs: $ 18,000 26,650 5,875 Overhead costs (actual) Indirect materials Indirect labor Power Maintenance Rent of factory building Depreciation Machinery Supervisory salaries Total actual overhead costs 20,000 10,5 $184,620 1. Compute the overhead controllable variance and classify it as favorable or unfavorable 2. Compute the overhead volume variance and classify it as favorable or unfavorable 3. Prepare an overhead variance report at the actual activity level of 10,800 units.

Answer 1

Req 1	Controllable Variance
	Total actual overhead		104,620
	Flexible budget overhead
	Variable	$56,700
	Fixed	46,800
	Total		$103,500
	Overhead controllable variance		1,120	Unfavorable
Req 2	Volume Variance
	Total budgeted fixed OH	$46,800
	Total fixed overhead applied	52,650
	Volume variance	5,850	Favorable
Req 3	JAMES CORP.
	Overhead Variance Report
	For Month ended May 31
	Expected Production Volume	80%	of capacity
	Production level achived	90%	of capacity
	Volume Variance	5,850	Favorable
	Controllable Variance	Flexible Budget	Actual Results	Variances	Fav./Unfav.
	Variable overhead costs:
	Indirect materials	20,250	18,000	2,250	Favorable
	Indirect labor	27,000	26,650	350	Favorable
	Power	6,075	6,075	0	No Variance
	Maintenance	3,375	3,995	620	Unfavorable
	Total variable costs	56,700	54,720	1,750	Favorable
	Fixed overhead costs:
	Rent of factory building	20,000	20,000	0	No Variance
	Depreciation—Machinery	10,500	10,500	0	No Variance
	Supervisory salaries	16,300	19,400	3,100	Unfavorable
	Total fixed costs	46,800	49,900	3,100	Unfavorable
	Total overhead costs	103,500	104,620	1,120	Unfavorable