Blaze Corp. applies overhead on the basis of direct labor hours. For the month of March, the company planned production of 8,000 units (80% of its production capacity of 10,000 units) and prepared the following budget. Operating Levels Overhead Budget 80% Production in units 8,000 Standard direct labor hours 32,000 Budgeted overhead Variable overhead costs Indirect materials $ 10,000 Indirect labor 16,000 Power 4,000 Maintenance 2,000 Total variable costs 32,000 Fixed overhead costs Rent of factory building 12,000 Depreciation—Machinery 20,000 Taxes and insurance 2,400 Supervisory salaries 13,600 Total fixed costs 48,000 Total overhead costs $ 80,000 During March, the company operated at 90% capacity (9,000 units), and it incurred the following actual overhead costs. Overhead costs (actual) Indirect materials $ 10,000 Indirect labor 16,000 Power 4,500 Maintenance 3,000 Rent of factory building 12,000 Depreciation—Machinery 19,200 Taxes and insurance 3,000 Supervisory salaries 14,000 Total actual overhead costs $ 81,700 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.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter9: Evaluating Variances From Standard Costs

Section: Chapter Questions

Problem 16E: Thomas Textiles Corporation began November with a budget for 60,000 hours of production in the...

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Blaze Corp. applies overhead on the basis of direct labor hours. For the month of March, the company planned production of 8,000 units (80% of its production capacity of 10,000 units) and prepared the following budget.

	Operating Levels
Overhead Budget	80%
Production in units		8,000
Standard direct labor hours		32,000
Budgeted overhead
Variable overhead costs
Indirect materials	$	10,000
Indirect labor		16,000
Power		4,000
Maintenance		2,000
Total variable costs		32,000
Fixed overhead costs
Rent of factory building		12,000
Depreciation—Machinery		20,000
Taxes and insurance		2,400
Supervisory salaries		13,600
Total fixed costs		48,000
Total overhead costs	$	80,000

During March, the company operated at 90% capacity (9,000 units), and it incurred the following actual overhead costs.

Overhead costs (actual)
Indirect materials	$	10,000
Indirect labor		16,000
Power		4,500
Maintenance		3,000
Rent of factory building		12,000
Depreciation—Machinery		19,200
Taxes and insurance		3,000
Supervisory salaries		14,000
Total actual overhead costs	$	81,700

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.

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