James Corp. applies overhead on the basis of direct labor hours. For the month of May,...

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Accounting

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.

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3.6 Ratings (653 Votes)

Ans1 Computation of Overhead volume variance Particulars Plant Capacity Budget Variance Remarks Overhead Budget 80 90 Production Units 10000 11250 1250 ie For 80 10000 units then for 90 10000080 X 090 11250 units Standard Direct Labour hours 27000 30375 3375 For 10000 units 27000 hrs then Direct labour hour per unit 2700010000 270 hr Hence for 11250 units ie 90 11250 X 270 30375 hrs Budget Overhead Variable Overhead costs Indirect Materials 1620000 1822500 2025 For 10000 units See Answer

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	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

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