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 7,800 hours.

Variable costs:
Indirect factory wages $30,240
Power and light 20,160
Indirect materials 16,800
Total variable cost $67,200
Fixed costs:
Supervisory salaries $20,000
Depreciation of plant and equipment 36,200
Insurance and property taxes 15,200
Total fixed cost 71,400
Total factory overhead cost $138,600

During May, the department operated at 8,860 standard hours, and the factory overhead costs incurred were indirect factory wages, $32,400; power and light, $21,000; indirect materials, $18,250; supervisory salaries, $20,000; depreciation of plant and equipment, $36,200; and insurance and property taxes, $15,200.

Required:
Prepare a factory overhead cost variance report for May. To be useful for cost control, the budgeted amounts should be based on 8,860 hours.

Answer 1

Tiger Equipment Inc.

Welding Department

Factory Overhead Cost Variance Report for May

Variable costs: Estimates Flexible Actual Variance

Indirect factory wages $30,240 $34,117 $32,400 $1,717 F

Power and light 20,160 22,745 21,000 1,745 F

Indirect materials 16,800 18,954 18,250 704 F

Total variable cost $67,200 $75,816 $71,650 $4,166 F

Fixed costs:

Supervisory salaries $20,000 $20,000 $20,000 $ 0

Depreciation of plant & equipment 36,200 36,200 36,200 0

Insurance and property taxes 15,200 15,200 15,200 0

Total fixed cost 71,400 71,400 71,400 0

Total factory overhead cost $138,600 $147,216 $143,050 $4,166 F

Step-by-step explanation:

a) Data and Calculations:

Variable costs: Estimates Flexible Actual Variance

Indirect factory wages $30,240 $34,117 $32,400 $1,717 F

Power and light 20,160 22,745 21,000 1,745 F

Indirect materials 16,800 18,954 18,250 704 F

Total variable cost $67,200 $75,816 $71,650 $4,166 F

Fixed costs:

Supervisory salaries $20,000 $20,000 $20,000 $ 0

Depreciation of plant & equipment 36,200 36,200 36,200 0

Insurance and property taxes 15,200 15,200 15,200 0

Total fixed cost 71,400 71,400 71,400 0

Total factory overhead cost $138,600 $147,216 $143,050 $4,166 F

Flexible costs:

Indirect factory wages = $30,240/7,800 * 8,800 = $34,117

Power and light = $20,160/7,800 * 8,800 = $22,745

Indirect materials = $16,800/7,800 * 8,800 = $18,954

Normal capacity = 7,800 hours (100%)

Actual capacity = 8,800 hours (113%)