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 8,700 hours.
1 Variable costs:
2 Indirect factory wages $40,020.00
3 Power and light 20,880.00
4 Indirect materials 17,400.00
5 Total variable cost $78,300.00

6 Fixed costs:
7 Supervisory salaries $19,800.00
8 Depreciation of plant and equipment 35,700.00
9 Insurance and property taxes 18,450.00
10 Total fixed cost 73,950.00
11 Total factory overhead cost $152,250.00

During May, the department operated at 9,080 hours, and the factory overhead costs incurred were indirect factory wages, $42,268; power and light, $22,064; indirect materials, $18,700; supervisory salaries, $19,800; depreciation of plant and equipment, $35,700; and insurance and property taxes, $18,450.

Required:
Prepare a factory overhead cost variance report for May. To be useful for cost control, the budgeted amounts should be based on 9,080 hours.

Answer 1

Answer:

Tiger Equipment Inc.

Factory Overhead Cost Variance Report    

1 Variable costs:                                             Actual         Flexible   Variance

2 Indirect factory wages                         $42,268.00     $41,768    500.00 U

3 Power and light                                      22,064.00       21,792    272.00 U

4 Indirect materials                                    18,700.00        18,160    540.00 U

5 Total variable cost                               $83,032.00    $81,720   1,312.00 U

6 Fixed costs:

7 Supervisory salaries                            $19,800.00     $19,800     $0  None

8 Depreciation of plant and equipment 35,700.00       35,700     $0  None

9 Insurance and property taxes              18,450.00       18,450      $0  None

10 Total fixed cost                                    73,950.00      73,950     $0  None

11 Total factory overhead cost            $156,982.00  $155,670  $1,312 U

Explanation:

Welding Department's

Factory Overhead Cost Budget

For the month of May:

1 Variable costs:

2 Indirect factory wages                        $40,020.00

3 Power and light                                     20,880.00

4 Indirect materials                                   17,400.00

5 Total variable cost                              $78,300.00

6 Fixed costs:

7 Supervisory salaries                            $19,800.00

8 Depreciation of plant and equipment 35,700.00

9 Insurance and property taxes              18,450.00

10 Total fixed cost                                   73,950.00

11 Total factory overhead cost           $152,250.00

b) Flexing the variable cost:

1 Variable costs:                                                            Flexible

2 Indirect factory wages         $40,020/8,700 * 9,080 = $41,768

3 Power and light                     20,880 /8,700 * 9,080 =  $21,792

4 Indirect materials                    17,400/8,700 * 9,080 =  $18,160

5 Total variable cost                $78,300/8,700 * 9,080 = $81,720