James Corp. applies overhead on the basis of direct labor hours.For the month of May, the company planned production of 10,000units (80% of its production capacity of 12,500 units) and preparedthe following overhead budget:
| Operating Levels |
| OverheadBudget | 80% |
| Production inunits | | 10,000 | |
| Standard directlabor hours | | 27,000 | |
| Budgetedoverhead | | | |
| Variableoverhead costs | | | |
| Indirectmaterials | $ | 16,200 | |
| Indirectlabor | | 27,000 | |
| Power | | 5,400 | |
| Maintenance | | 5,400 | |
| Total variablecosts | | 54,000 | |
| Fixed overheadcosts | | | |
| Rent of factorybuilding | | 23,000 | |
| Depreciation—Machinery | | 10,800 | |
| Supervisorysalaries | | 14,800 | |
| Total fixedcosts | | 48,600 | |
| Total overheadcosts | $ | 102,600 | |
|
During May, the company operated at 90% capacity (11,250 units) andincurred the following actual overhead costs:
| Overhead Costs |
| Indirectmaterials | $ | 16,200 | |
| Indirectlabor | | 29,875 | |
| Power | | 6,075 | |
| Maintenance | | 6,710 | |
| Rent of factorybuilding | | 23,000 | |
| Depreciation—Machinery | | 10,800 | |
| Supervisorysalaries | | 18,200 | |
| Total actualoverhead costs | $ | 110,860 | |
|
2. Compute the overhead volume variance.
3. Prepare an overhead variance report at theactual activity level of 11,250 units.
