Question

Blaze Corp. applies overhead on the basis of direct labor hours. For the month of March, the company planned production of 10,000 units (80% of its production capacity of 12,500 units) and prepared the following budget:

	Operating Levels
Overhead Budget	80%
Production in units		10,000
Standard direct labor hours		30,000
Budgeted overhead
Variable overhead costs
Indirect materials	$	30,000
Indirect labor		40,000
Power		8,000
Maintenance		3,000
Total variable costs		81,000
Fixed overhead costs
Rent of factory building		31,000
Depreciation—Machinery		45,000
Taxes and insurance		3,600
Supervisory salaries		16,400
Total fixed costs		96,000
Total overhead costs	$	177,000

During March, the company operated at 90% capacity (11,250 units), and it incurred the following actual overhead costs.

Overhead Costs
Indirect materials	$	30,000
Indirect labor		40,000
Power		9,000
Maintenance		3,810
Rent of factory building		31,000
Depreciation—Machinery		40,000
Taxes and insurance		4,350
Supervisory salaries		21,500
Total actual overhead costs	$	179,660

1. Compute the overhead controllable variance.
2. Compute the overhead volume variance.
3. Prepare an overhead variance report at the actual activity level of 9,000 units.

Required 1 Required 2 Required 3 Compute the overhead controllable variance. Classify as favorable or unfavorable. (Do not round intermediate calculations.) Controllable Variance Total actual overhead Flexible budget overhead Fixed Variable Total 0 Overhead controllable variance avorable Required 1Required 2Required 3 Compute the overhead volume variance. Classify as favorable or unfavorable. (Do not round intermediate calculations.) Volume Variance otal budgeted fixed OH Total fixed overhead applied Volume variance avorable Prepare an overhead variance report at the actual activity level of 9,000 units. Classify as favorable or unfavorable. (Do not round intermediate calculations.) BLAZE CORP Overhead Variance Report For Month Ended March 31 Expected production volume (80% of capacity 90% of capacity Production level achieved Volume variance Favorable Controllable Variance Flexible Budget Actual ResultsVariances Fav. / Unfav Variable overhead costs Indirect materials avorable Indirect labor avorable Power o variance Maintenance nfavorable otal variable costs avorable Fixed overhead costs Rent of factory building o variance Depreciation-Machinery avorable Taxes and insurance nfavorable Supervisory salaries nfavorable Unfavorable Total fixed costs Total overhead costs Favorable

Answer 1

Part 1

	Controllable Variance Total actual overhead $179660 Flexible budget overhead Variable $91125 Fixed 96000 Total 187125 Overhead controllable variance $7465 Favorable

Variable = 81000*90%/80%

Part 2

Volume Variance Total budgeted fixed OH $96000 Total fixed overhead applied 108000 Volume variance $12000 Favorable

Standard rate = Budgeted fixed overhead/Budgeted direct labor hours = 96000/30000 = $3.20/hr

Fixed overhead applied = 33750 hours * $3.20/hr = $108000

(30000 hours / 80% *90% = 33750 hours)

Part 3

BLAZE CORP. Overhead Variance Report For Month Ended May 31 Expected production volume 80% of capacity Production level achieved 90% of capacity Volume variance $12000 Favorable Controllable Variance Flexible Budget Actual Results Variances Fav./Unfav. Variable overhead costs: Indirect materials 33750 30000 3750 Favorable Indirect labor 45000 40000 5000 Favorable Power 9000 9000 No variance Maintenance 3375 3810 435 Unfavorable Total variable costs 91125 82810 8315 Favorable Fixed overhead costs: Rent of factory building 40000 40000 No variance Depreciation—Machinery 4350 4350 No variance Supervisory salaries 16400 21500 5100 Unfavorable Total fixed costs 60750 65850 5100 Unfavorable Total overhead costs 151875 148660 $3215 Unfavorable

Indirect materials = 30000/80%*90% =33750

Indirect labor =40000/80%*90%

Power = 8000/80%*90% = 9000

Maintenance = 3000/80%*90% = 3375