Problem - Silver Company set the following standard costs for one unit of its product.
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Direct materials (3.0 Ibs. @ $5.0 per Ib.)
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$15.00
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Direct labor (1.6 hrs. @ $13.0 per hr.)
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20.80
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Overhead (1.6 hrs. @ $18.50 per hr.)
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29.60
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Total standard cost
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$65.40
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The predetermined overhead rate ($18.50 per direct labor hour) is based on expected volume of 75% of the factory's capacity of 20,000 units per month. Following are the company's budgeted overhead costs per month at the 75% level.
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Overhead Budget (75% capacity)
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Variable overhead costs
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|
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Indirect materials
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$22,000
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|
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Indirect labor
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90,000
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|
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Power
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22,000
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|
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Repairs and maintenance
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45,000
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|
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Total variable overhead costs
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$179,000
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Fixed overhead costs
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|
|
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Depreciation-building
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24,000
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|
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Depreciation-machinery
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74,000
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|
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Taxes and insurance
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19,000
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|
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Supervision
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148,000
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|
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Total fixed overhead costs
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265,000
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Total overhead costs
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$444,000
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The company incurred the following actual costs when it operated at 75% of capacity in October.
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Direct materials (45,500 Ibs. @ $5.10 per lb.)
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$232,050
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Direct labor (31,000 hrs. @ $13.40 per hr.)
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415,400
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Overhead costs
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|
|
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Indirect materials
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$45,750
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|
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Indirect labor
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177,250
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|
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Power
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25,300
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|
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Repairs and maintenance
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51,750
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|
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Depreciation-building
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24,000
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|
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Depreciation-machinery
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99,900
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|
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Taxes and insurance
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17,100
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|
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Supervision
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148,000
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589,050
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Total costs
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$1,236,500
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Required -
Examine the monthly overhead budget to (a) determine the costs per unit for each variable overhead and its total per unit costs, and (b) identify the total fixed costs per month.
Prepare flexible overhead budgets for October showing the amounts of each variable and fixed cost at the 65%, 75%, and 85% capacity levels.
Compute the direct materials cost variance, including its price and quantity variances.
Compute the direct labor cost variance, including its rate and efficiency variances.
Compute the (a) variable overhead spending and efficiency variances, (b) fixed overhead spending and volume variances, and (c) total overhead controllable variance.
Prepare a detailed overhead variance report that shows the variances for individual items of overhead.