Star medical, Inc., a manufacturer of disposable medical supplies, prepared the

Question

Star medical, Inc., a manufacturer of disposable medical supplies, prepared the following factory overhead cost budget for the Assembly Department for October 2012. The company expected to operate the department at 100% of normal capacity of 24,000 hours.
Variable Costs:
Indirect factory wages $180,000
Power and light 124,800
Indirect materials 33,600
Total variable cost $338,400

Fixed Costs:
Supervisory salaries $72,000
Depreciation of plant and equipment 51,500
Insurance and property taxes 24,100
Total Fixed Costs $147,600
Total factory overhead cost $486,000

During October, the department operated at 22,500 hours, and the factory overhead costs incurred were indirect factory wages, $167,550; power and light, $116,800; indirect materials, $31,950; supervisory salaries, $72,000; depreciation of plant and equipment, $51,500; and insurance and property taxes, $24,100.

Instructions:
Prepare a factory overhead cost variance report for October. To be useful for cost control, the budgeted amounts should be based on 22,500 hours.

Explanation / Answer

Star Medical, Inc.
Factory Overhead Cost Variance Report-Assembly Department
For the Month Ended October 31, 2012
Normal capacity for the month 24,000 hrs.
                               
Actual production for the month 22,500 hrs.
                               
       
Budget
       
Actual
       
Favorable Variances
       
Unfavorable Variances
Variable costs:
                               
Indirect factory wages
       
$168750
       
$167550
       
$-1200
       
Power and light
       
117000
       
116800
       
-200
       
Indirect materials
       
31500
       
31950
               
$450
Total variable cost
       
$317250
       
$316300
               
Fixed costs:
                               
Supervisory salaries
       
$72000
       
$72000
               
Depreciation of plant and equipment
       
51500
       
51500
               
Insurance and property taxes
       
24100
       
24100
               
Total fixed cost
       
$147600
       
$147600
               
Total factory overhead cost
       
$464850
       
$463900
               
Total controllable variances
                       
$-1400
       
$450
Net controllable variance-favorable
                               
$-950
Volume variance-unfavorable:
                               
Idle hours at the standard rate for fixed factory overhead
                               
9225
Total factory overhead cost variance-unfavorable
                               
$8275

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