Question

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 hours, and 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.

Required:

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. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. If an amount box does not require an entry, leave it blank.

Tiger Equipment Inc.
Factory Overhead Cost Variance Report-Welding Department
For the Month Ended May 31
Normal capacity for the month 8,400 hrs.
Actual production for the month 8,860 hrs.
	Actual Cost	Budget (at Actual Production)	Unfavorable Variances	Favorable Variances
Variable factory overhead costs:
Indirect factory wages	$fill in the blank 1	$fill in the blank 2	$fill in the blank 3	$fill in the blank 4
Power and light	fill in the blank 5	fill in the blank 6	fill in the blank 7	fill in the blank 8
Indirect materials	fill in the blank 9	fill in the blank 10	fill in the blank 11	fill in the blank 12
Total variable cost	$fill in the blank 13	$fill in the blank 14
Fixed factory overhead costs:
Supervisory salaries	$fill in the blank 15	$fill in the blank 16
Depreciation of plant and equipment	fill in the blank 17	fill in the blank 18
Insurance and property taxes	fill in the blank 19	fill in the blank 20
Total fixed cost	$fill in the blank 21	$fill in the blank 22
Total factory overhead cost	$fill in the blank 23	$fill in the blank 24
Total controllable variances			$fill in the blank 25	$fill in the blank 26
			$fill in the blank 28
Volume variance—favorable:
Excess hours used over normal at the standard rate for fixed factory overhead			fill in the blank 29
			$fill in the blank 31

Answer 1

Answer:

Tiger Equipment Inc.
Factory Overhead Cost Variance Report-Welding Department
For the Month Ended May 31
Normal capacity for the month 8,400 hrs.
Actual production for the month 8,860 hrs.
	Actual Cost	Budget (at Actual Production)	Unfavorable Variances	Favorable Variances
Variable factory overhead costs:
Indirect factory wages	32,400	31,896	504
Power and light	21,000	21,264		-264
Indirect materials	18,250	17,720	530
Total variable cost	71,650	70,880
Fixed factory overhead costs:
Supervisory salaries	20,000	20,000
Depreciation of plant and equipment	36,200	36,200
Insurance and property taxes	15,200	15,200
Total fixed cost	71,400	71,400
Total factory overhead cost	143,050	142,280
Total controllable variances			1,034	-264
Net Controllable variance - Unfavorable			770
Volume variance—favorable:
Excess hours used over normal at the standard rate for fixed factory overhead			-3,910
Total factory overhead cost variance - favorable			-3,140

Calculation:

Here we need to prepare the  factory overhead cost variance report for May.

The budgeted amounts are based on 8,860 hours and the 100% of normal capacity of 8,400 hours.

So here first we need to input the Actual Cost incurred.

That is the factory overhead costs incurred were indirect factory wages, $32,400; power and light, $21,000; indirect materials, $18,250 need to be taken under the Variable factory overhead costs.

And the supervisory salaries, $20,000; depreciation of plant and equipment, $36,200; and insurance and property taxes, $15,200 need to be taken under Fixed factory overhead costs. Then sum that up for the Total factory overhead cost.

Then we need to calculate the Budget (at Actual Production). For that we need to find the Variable factory overhead costs budgeted at actual production as below.

	8,400 hours (a)	Per hour cost (b) = (a)/8,400	(b) x 8,860 hours
Indirect factory wages	30,240	3.60	31,896
Power and light	20,160	2.40	21,264
Indirect materials	16,800	2.00	17,720

The fixed cost remains the same. Then sum that up for the Total factory overhead cost.

Then we need to find the difference between the Actual and budgeted to get the variances.

To get the Net Controllable variance - Unfavorable, we need to deduct the favorable from unfavorable variances

Then we need to calculate the Excess hours used over normal at the standard rate for fixed factory overhead

So we need to take the per hour fixed factory overhead factory overhead as below:

	8400 hours Fixed cost	Per hour cost
Supervisory salaries	$20,000	$2.38
Depreciation of plant and equipment	36,200	$4.31
Insurance and property taxes	15,200	$1.81
		$8.50

Then we need to multiply that with the Excess hours used over normal

Excess hours used over normal = (8860 - 8400) = 460 hours

Excess hours used over normal at the standard rate for fixed factory overhead = 460 x 8.50 = -3,910 F

Then we need to add this with the Net Controllable variance - Unfavorable get the Total factory overhead cost variance - favorable of 3,140