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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

 Feeling Belter Medical Inc., a manufacturer of disposable medical .supplies, prepared the following factory overhead cost budget for the Assembly Department for October of the current year, The company expected to operate the department at 100% of normal capacity of 30,000 hours.

Variable costs:
Indirect factory wages $247,500  
Power and light 189.000  
Indirect materials 52,500  
Total variable cost   $489,000
Fixed costs:
Supervisory salaries $126,000  
Depreciation of plant and equipment 70,000  
Insurance and property taxes 44.000  
Total fixed cost   240,000
Total factory overhead cost   $729,000

 During October, the department operated at 28,500 hours. The factory overhead costs incurred were indirect factory wages, $254,000; power and light, $178,500; indirect materials, $50,600; supervisory salaries, $126,000; depreciation of plant and equipment, $70,000; and insurance and property taxes, $44,000.

 Instructions

 Prepare a factory overhead cost variance report for October. To be useful for cost control, the budgeted amounts should be based on 28,500 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 Assembly Department.

Explanation

A factory overhead cost variance report for the Assembly 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=$247,50030,000 hrs.×28,500=$235,125

(1)

Budgeted variablefactory overhead costs}=[Variable overhead cost of power and lightBudgeted volume hours]×Actual hours of production=$189,00030,000 hrs

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