Antuan Company set the following standard costs for one unit of its product. The

Question

Antuan Company set the following standard costs for one unit of its product.

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.

The company incurred the following actual costs when it operated at 75% of capacity in October.

Required:

1&2. 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.

3. Compute the direct materials cost variance, including its price and quantity variances.

4. Compute the direct labor cost variance, including its rate and efficiency variances.

Direct materials (4.0 lbs. @ $5.00 per lb. Direct labor (1.9 hrs. $11.00 per hr.) Overhead (1.9 hrs. $18.50 per hr) $20.00 20.90 35.15 Total standard cost 76.05

Explanation / Answer

Antuan Comppany   Flexible Overhead Budget For various Capacity levels for the month ended October 31. Capacity Level Full Capacity level =20000 units Cost Formula 65% 75% 85% Production Units             13,000                15,000                 17,000 Variable Overhead Costs Variable cost/unit Indirect Materials                      1.00             13,000                15,000                 17,000 Indirect Labor                      5.00             65,000                75,000                 85,000 Power                      1.00             13,000                15,000                 17,000 Repairs & Maintenance                      2.00             26,000                30,000                 34,000 Total Variable Overhead Costs                      9.00     117,000.00        135,000.00         153,000.00 Fixed Overhead Costs Depreciation -Building                 24,000             24,000                24,000                 24,000 Depreciation -Machinery                 71,000             71,000                71,000                 71,000 Taxes Insurance                 18,000             18,000                18,000                 18,000 Supervision               279,250           279,250              279,250               279,250 Total Fixed Overhead Cost               392,250           392,250              392,250               392,250 Total Overhead cost           509,250              527,250               545,250 Std Cost Qty/Hr Rate Cost Direct Material                      4.00                  5.00                   20.00 Direct Labor                      1.90                11.00                   20.90 Actual results Actual Qty /Hrs Rate Actual cost Std Qty /Hr for 15000 units Direct Material                 61,000                  5.10              311,100                 60,000 Direct Labor                 28,000                11.30              316,400                 28,500 Direct Materials Price Variance= Actual Qty Used( Actual Rate-Std Rate) =61000*(5.1-5)                    6,100 (U) Direct Material Efficiency Variance =Std Rate ( Actual Qty used-Std qty for actual output)      =5*(61000-60000)                    5,000 (U) Direct Labor Rate Variance= Actual Hrs Used( Actual Rate-Std Rate) =28000*(11.3-11)                    8,400 (U) Direct LAbor Efficiency Variance =Std Rate ( Actual Hrs used-Std Hrs for actual output)      =11*(28000-28500)                    5,500 (F)

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