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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

 Tiger Equipment Inc., a manufacturer of construction equipment, prepared the following factory overhead cost budget for the Welding Department for May of the current year. The company expected to operate the department at 100% of normal capacity of 8,400 hours.

Variable costs:
Indirect factory wages $30,240  
Power and light 20,160  
Indirect materials 16,800  
Total variable cost   $ 67,200
Fixed costs:
Supervisory salaries $20,000  
Depreciation of plant and equipment 36,200  
Insurance and property taxes 15,200  
Total fixed cost   71,400
Total factory overhead cost   $138,600

 During May, the department operated at 8,860 standard hours. The factory overhead Costs incurred were indirect factory wages, $32,400; power and light, $21,000; indirect materials, $18,250; supervisory salaries, $20,000; depreciation of plant and equipment, $36,200; and insurance and property taxes, $15,200.

 Instructions

 Prepare a factory overhead cost variance report for May. To be useful for cost control, the budgeted amounts should be based on 8,860 hours.

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 Welding department.

Explanation

A factory overhead cost variance report for the Welding 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=$30,2408,400 hrs.×8,860=$31,896

(1)

Budgeted variablefactory overhead costs}=[Variable overhead cost of power and lightBudgeted volume hours]×Actual hours of production=$20,1608,400 hrs

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