The predetermined overhead rate ($18.50 per direct labor hour) is based on an ex
ID: 2467990 • Letter: T
Question
The predetermined overhead rate ($18.50 per direct labor hour) is based on an expected volume of 75% of the factory’s capacity of 20,000 units per month. Following are the company’s budgeted overhead costs per month at the 75% capacity level.
Prepare flexible overhead budgets for October showing the amounts of each variable and fixed cost at the 65%, 75%, and 85% capacity levels and classify all items listed in the fixed budget as variable or fixed.
7.
value:
15.00 points
Required information
Compute the direct materials cost variance, including its price and quantity variances.
Antuan Company set the following standard costs for one unit of its product.
Explanation / Answer
Solution:
1)
Flexible Budget is the budget prepared at standard cost on actual basis.
Antuan Company
Flexible Overhead Budgets for October
Per Unit Cost
Capacity Level
65%
75%
85%
17,333 Units
20,000 Units
22,667 Units
Variable Overhead Costs
Indirect materials
$0.75
$13,000
$15,000
$17,000
Indirect labor
$3.75
$65,000
$75,000
$85,000
Power
$0.75
$13,000
$15,000
$17,000
Repair and Maintenance
$1.50
$26,000
$30,000
$34,000
Total Variable Overhead Costs
$6.75
$117,000
$135,000
$153,000
Fixed Overhead Costs
Depreciation—building
$25,000
$25,000
$25,000
Depreciation—machinery
$72,000
$72,000
$72,000
Taxes and insurance
$18,000
$18,000
$18,000
Supervision
$305,000
$305,000
$305,000
Total fixed overhead costs
$420,000
$420,000
$420,000
Total overhead costs
$537,000
$555,000
$573,000
Computation of the direct materials cost variance, including its price and quantity variances
Direct Material Price Variance = Actual Quantity Purchased (Standard Price – Actual Price)
= 61,000 ($4 - $4.20) = $12,200 Unfavorable
Direct Material Quantity Variance = Standard Cost (Standard Quantity for Actual Output – Actual Quantity)
Standard Quantity for Actual Output = Actual Output x Per Unit Standard Quantity = 20,000 Units x 4 = 80,000 lbs
= $4 (80,000 – 61,000) = $76,000 Favorable
Direct Material Cost Variance = Price Variance + Quantity Variance = $12,200 U + $76,000 F = $63,800 F
Antuan Company
Flexible Overhead Budgets for October
Per Unit Cost
Capacity Level
65%
75%
85%
17,333 Units
20,000 Units
22,667 Units
Variable Overhead Costs
Indirect materials
$0.75
$13,000
$15,000
$17,000
Indirect labor
$3.75
$65,000
$75,000
$85,000
Power
$0.75
$13,000
$15,000
$17,000
Repair and Maintenance
$1.50
$26,000
$30,000
$34,000
Total Variable Overhead Costs
$6.75
$117,000
$135,000
$153,000
Fixed Overhead Costs
Depreciation—building
$25,000
$25,000
$25,000
Depreciation—machinery
$72,000
$72,000
$72,000
Taxes and insurance
$18,000
$18,000
$18,000
Supervision
$305,000
$305,000
$305,000
Total fixed overhead costs
$420,000
$420,000
$420,000
Total overhead costs
$537,000
$555,000
$573,000
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