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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Factory overhead cost variance report

 Tannin Products Inc. prepared the following factory 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 cost    
Indirect factory labor $46,000  
Power and light 12,000  
Indirect materials 20,000  
Total variable overhead cost   $78,000
Fixed overhead cost:    
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 cost:  
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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