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

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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
Overhead Budget 80%
Production in units 10,000
Standard direct labor hours 20,000
Budgeted overhead
Variable overhead costs
Indirect materials $ 15,000
Indirect labor 20,000
Power 5,000
Maintenance 2,000
Total variable costs 42,000
Fixed overhead costs
Rent of factory building 15,000
Depreciation—Machinery 11,200
Supervisory salaries 9,800
Total fixed costs 36,000
Total overhead costs $ 78,000

During May, the company operated at 90% capacity (11,250 units) andincurred the following actual overhead costs:
Overhead costs (actual)
Indirect materials $ 15,000
Indirect labor 22,400
Power 5,625
Maintenance 3,050
Rent of factory building 15,000
Depreciation—Machinery 11,200
Supervisory salaries 12,500
Total actual overhead costs $ 84,775

1. Compute the overhead controllable variance andclassify it as favorable or unfavorable.
2. Compute the overhead volume variance andclassify it as favorable or unfavorable.
3. Prepare an overhead variance report at theactual activity level of 11,250 units.

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Solution 1 and 2:

Controllable Variance
Total actual overhead		$84,775.00
Flexible Budget Overhead
Fixed	$36,000.00
Variable	$47,250.00
Total		$83,250.00
Overhead controllable variance		$1,525.00	Unfavorable

Volume Variance
Total Budgeted Fixed overhead	$36,000.00
Total fixed overhead applied	$40,500.00
Volume Variance	$4,500.00	Favorable

SOlution 3:

James Corp
Overhead variance Report
For the month ended May 31
Expected production volume	80% of capacity
Production level achieved	90% of capacity
Volume variance	$4,500.00	Favorable
Controllable variance	Flexible budget	Actual results	Variances	Fav/Unfav.
Variable overhead costs:
Indirect material	$16,875.00	$15,000.00	$1,875.00	Favorable
Indirect labor	$22,500.00	$22,400.00	$100.00	Favorable
Power	$5,625.00	$5,625.00	$0.00	No Variance
Maintenance	$2,250.00	$3,050.00	$800.00	Unfavorable
Total variable costs	$47,250.00	$46,075.00	$1,175.00	Favorable
Fixed overhead costs:
Rent of factory building	$15,000.00	$15,000.00	$0.00	No Variance
Depreciation - Machinery	$11,200.00	$11,200.00	$0.00	No Variance
Supervisory salaries	$9,800.00	$12,500.00	$2,700.00	Unfavorable
Total fixed costs	$36,000.00	$38,700.00	$2,700.00	Unfavorable

Total overhead costs	$83,250.00	$84,775.00	$1,525.00	Unfavorable

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Transcribed Image Text

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 LevelsOverhead Budget80%Production in units10,000Standard direct labor hours20,000Budgeted overheadVariable overhead costsIndirect materials$15,000Indirect labor20,000Power5,000Maintenance2,000Total variable costs42,000Fixed overhead costsRent of factory building15,000Depreciation—Machinery11,200Supervisory salaries9,800Total fixed costs36,000Total overhead costs$78,000During May, the company operated at 90% capacity (11,250 units) andincurred the following actual overhead costs:Overhead costs (actual)Indirect materials$15,000Indirect labor22,400Power5,625Maintenance3,050Rent of factory building15,000Depreciation—Machinery11,200Supervisory salaries12,500Total actual overhead costs$84,7751. Compute the overhead controllable variance andclassify it as favorable or unfavorable.2. Compute the overhead volume variance andclassify it as favorable or unfavorable.3. Prepare an overhead variance report at theactual activity level of 11,250 units.

	Operating Levels
Overhead Budget	80%
Production in units		10,000
Standard direct labor hours		20,000
Budgeted overhead
Variable overhead costs
Indirect materials	$	15,000
Indirect labor		20,000
Power		5,000
Maintenance		2,000
Total variable costs		42,000
Fixed overhead costs
Rent of factory building		15,000
Depreciation—Machinery		11,200
Supervisory salaries		9,800
Total fixed costs		36,000
Total overhead costs	$	78,000

Overhead costs (actual)
Indirect materials	$	15,000
Indirect labor		22,400
Power		5,625
Maintenance		3,050
Rent of factory building		15,000
Depreciation—Machinery		11,200
Supervisory salaries		12,500
Total actual overhead costs	$	84,775