Problem - Blaze Corp. applies overhead on the basis of direct labor hours. For the month of March, the company planned production of 10.000 units (80% of its production capacity of 12,500 units) and prepared the following budget:
|
Overhead Budget
|
Operating Levels
|
|
80%
|
|
Production in units
|
10,000
|
|
Standard direct labor hours
|
24,000
|
|
Budgeted overhead
|
|
|
Variable overhead costs
|
|
|
Indirect materials
|
$25.000
|
|
Indirect labor
|
35,000
|
|
Power
|
7,600
|
|
Maintenance
|
4,400
|
|
Total variable costs
|
72,000
|
|
Fixed overhead costs
|
|
|
Rent of factory building
|
25,000
|
|
Depreciation-machinery
|
35,000
|
|
Taxes and insurance
|
4,000
|
|
Supervisory salaries
|
20,000
|
|
Total fixed costs
|
84,000
|
|
Total overhead costs
|
$156,000
|
During March, the company operated at 90% capacity (11,250 units), and it incurred the following actual overhead costs:
|
Overhead Costs
|
|
|
Indirect materials
|
$25.000
|
|
Indirect labor
|
35,000
|
|
Power
|
8,550
|
|
Maintenance
|
6,590
|
|
Rent of factory building
|
25,000
|
|
Depreciation-machinery
|
33,000
|
|
Taxes and insurance
|
4.500
|
|
Supervisor/ salaries
|
22,000
|
|
Total actual overhead costs
|
$159,640
|
1. Compute the overhead controllable variance.
2. Compute the overhead volume variance.
3. Prepare an overhead variance report at the actual activity level of 9,000 units.