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

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

Step-by-step 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