   Chapter 22, Problem 22.20EX

Chapter
Section
Textbook Problem

Factory overhead cost variance reportTannin Products Inc. prepared the following factor overhead cost budget for the Trim Department for July of the current year, during which it expected to use 20,000 hours for production: Variable overhead costs: Indirect factory labor $46,000 Power and light 12,000 Indirect materials 20,000 Total variable overhead cost$ 78,000 Fixed overhead costs: Supervisory salaries $54,500 Depreciation of plant and equipment 40,000 Insurance and property taxes 35,500 Total fixed overhead cost 130,000 Total factory overhead cost$208,000 Tannin has available 25,000 hours of monthly productive capacity in the Trim Department under normal business conditions. During July, the Trim Department actually used 22,000 hours for production. The actual fixed costs were as budgeted. The actual variable overhead for July was as follows: Actual variable factory overhead costs:   Indirect factory labor $49,700 Power and light 13,000 Indirect materials 24,000 Total variable cost$86,700 Construct a factory overhead cost variance report for the Trim Department for July.

To determine

Factory overhead cost variance:

The difference between the variable factory overhead controllable variances and the fixed factory overhead volume variances is known as factory overhead cost variance. It can be computed as follows:

Factory overhead cost variance} = (Variable factory overhead controllable variancesFixed factory overhead volume variances)

To construct: A factory overhead cost variance report for the T department.

Explanation

A factory overhead cost variance report for the T department is as follows:

Table (1)

Working notes:

Determine the budgeted variable factory overhead costs:

Budgeted variablefactory overhead costs}=[Variable overhead cost of indirect factory laborBudgeted volume hours]×Actual hours of production=$46,00020,000 hrs.×22,000=$50,600 (1)

Budgeted variablefactory overhead costs}=[Variable overhead cost of power and lightBudgeted volume hours]×Actual hours of production=\$12,00020,000 hrs

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