Kudos Co: Materials, labor, and overhead variances; overhead variance report Kud

Question

Kudos Co: Materials, labor, and overhead variances; overhead variance report Kudos Company has set the following standard costs per unit for the product it manufactures. Direct materials ( 10 Ibs. @ $ 3 per Ib.). . . . . . . . . . . $ 30.00 Direct labor ( 4 hrs. @ $ 6 per hr.) . . . . . . . . . . . . . 24.00 Overhead ( 4 hrs. @ $ 2.50 per hr.) . . . . . . . . . . . . . 10.00 Total standard cost . . . . . . . . . . . . . . . . . . . . . . . . . $ 64.00 The predetermined overhead rate is based on a planned operating volume of 80% of the productive capacity of 10,000 units per month. The following flexible budget information is available. ----------------------------------------------------Operating Levels ----------------------------------------------------70% 80% 90% Production in units . . . . . . . . . . . . . . . . . . 7,000 8,000 9,000 Standard direct labor hours . . . . . . . . . . . 28,000 32,000 36,000 Budgeted overhead Variable overhead costs Indirect materials . . . . . . . . . . . . . . . . $ 8,750 $ 10,000 $ 11,250 Indirect labor . . . . . . . . . . . . . . . . . . . 14,000 16,000 18,000 Power . . . . . . . . . . . . . . . . . . . . . . . . . 3,500 4,000 4,500 Maintenance . . . . . . . . . . . . . . . . . . . . 1,750 2,000 2,250 Total variable costs . . . . . . . . . . . . . . 28,000 32,000 36,000 Fixed overhead costs Rent of factory building . . . . . . . . . . 12,000 12,000 12,000 Depreciation - machinery . . . . . . . . 20,000 20,000 20,000 Supervisory salaries . . . . . . . . . . . . . 16,000 16,000 16,000 Total fixed costs . . . . . . . . . . . . . . . . . 48,000 48,000 48,000 Total overhead costs . . . . . . . . . . . . $ 76,000 $ 80,000 $ 84,000 During May, the company operated at 90% of capacity and produced 9,000 units, incurring the following actual costs. Direct materials ( 92,000 Ibs. @ $ 2.95 per Ib.) . . . . . . . . ..................... $ 271,400 Direct labor ( 37,600 hrs. @ $ 6.05 per hr.) . . . . . . ................................. .227,480 Overhead costs Indirect materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,000 Indirect labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,000 Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,500 Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000 Rent of factory building . . . . . . . . . . . . . . . . . . . . . . . . . 12,000 Depreciation - machinery . . . . . . . . . . . . . . . . . . . . . . . 19,200 Supervisory salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,000............. 81,700 Total costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......................... $ 580,580 Required 1. Compute the direct materials variance, including its price and quantity variances. 2. Compute the direct labor variance, including its rate and efficiency variances. 3. Compute these variances: (a) variable overhead spending and efficiency, (b) fixed overhead spending and volume, and (c) total overhead controllable. 4. Prepare a detailed overhead variance report that shows the variances for individual items of overhead.

Explanation / Answer

Overhead variance report Variable overhead costs Indirect materials Indirect labor Power Maintenance VO1 Actual Variable overhead costs 10000.00 16000.00 4500.00 3000.00 VO2 Actual hours(37,600 ) overhead cost at Standard variable rate/hour 11750.00 18800.00 4700.00 2350.00 VO3 Standard Variable overhead for 9000 units 11250.00 18000.00 4500.00 2250.00 Standard Variable overhead based on 8000 units 10000.00 16000.00 4000.00 2000.00 Standard Variable overhead rate based on 8000 units 1.25 2 0.5 0.25 Standard Variable overhead rate per hour(based on 4hrs) 0.3125 0.5 0.125 0.06 Variances Variable Overhead Variance(VO1-VO3) 1250.00 Favorable 2000.00 Favorable 0.00 750.00 Adverse Variable overhead expenditure Variance(VO1-VO2) 1750.00 Favorable 2800.00 Favorable 200.00 Favorable 650.00 Adverse Variable Overhead effeciency variance(VO2-VO3) 500.00 Adverse 800.00 Adverse 200.00 Adverse 100.00 Adverse Fixed Overhead Costs Rent Depreciation Supervisory sal FO1 Actual Fixed overhead costs 12000.00 19200.00 17000.00 FO2 Standard Fixed overhead based on 8000 units 12000.00 20000.00 16000.00 FO3 Standard Fixed overhead for 37600 hrs at standard rate 14100.00 23500.00 18800.00 FO4 Standard Fixed overhead for 9000 units 13500.00 22500.00 18000.00 Standard Fixed overhead rate based on 8000 units 1.50 2.50 2.00 Standard Fixedoverhead rate per hour(based on 4hrs) 0.38 0.63 0.50 Variances Fixed Overhead Variance(FO1-FO4) 1500.00 Favorable 3300.00 Favorable 1000.00 Favorable Fixed overhead expenditure Variance(FO1-FO2) 0.00 800.00 Favorable 1000.00 Adverse Fixed overhead Volume Variance(FO2-FO4) 1500.00 Favorable 2500.00 Favorable 2000.00 Favorable Fixed overhead Capacity Variance(FO2-FO3) 2100.00 Favorable 3500.00 Favorable 2800.00 Favorable FixedOverhead effeciency variance(FO3-FO4) 600 Adverse 1000.00 Adverse 800.00 Adverse

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