iger 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 6,200 hours. Variable costs: Indirect factory wages $20,460 Power and light 13,826 Indirect materials 11,346 Total variable cost $45,632 Fixed costs: Supervisory salaries $10,410 Depreciation of plant and equipment 26,700 Insurance and property taxes 8,150 Total fixed cost 45,260 Total factory overhead cost $90,892 During May, the department operated at 6,600 standard hours. The factory overhead costs incurred were indirect factory wages, $22,000; power and light, $14,450; indirect materials, $12,300; supervisory salaries, $10,410; depreciation of plant and equipment, $26,700; and insurance and property taxes, $8,150. Required: Prepare a factory overhead cost variance report for May. To be useful for cost control, the budgeted amounts should be based on 6,600 hours. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. Round your per unit computations to the nearest cent, if required. If an amount box does not require an entry, leave it blank. Tiger Equipment Inc.Factory Overhead Cost Variance Report—Welding DepartmentFor the Month Ended May 31 Normal capacity for the month 6,200 hrs. Actual production for the month 6,600 hrs. Actual Budget Unfavorable Variances Favorable Variances Variable costs: Indirect factory wages Power and light Indirect materials Total variable cost Fixed costs: Supervisory salaries Depreciation of plant and equipment Insurance and property taxes Total fixed cost Total factory overhead cost Total controllable variances Net controllable varience-unfavorable Volume variance-favorable Excess hours used over normal at the standard rate for fixed factory overhead Total factory overhead cost variance favorable
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Tiger Equipment Inc., a manufacturer of construction equipment, prepared the following
| Variable costs: | ||
| Indirect factory wages | $20,460 | |
| Power and light | 13,826 | |
| Indirect materials | 11,346 | |
| Total variable cost | $45,632 | |
| Fixed costs: | ||
| Supervisory salaries | $10,410 | |
| |
26,700 | |
| Insurance and property taxes | 8,150 | |
| Total fixed cost | 45,260 | |
| Total factory overhead cost | $90,892 |
During May, the department operated at 6,600 standard hours. The factory overhead costs incurred were indirect factory wages, $22,000; power and light, $14,450; indirect materials, $12,300; supervisory salaries, $10,410; depreciation of plant and equipment, $26,700; and insurance and property taxes, $8,150.
Required:
Prepare a factory overhead cost variance report for May. To be useful for cost control, the budgeted amounts should be based on 6,600 hours. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. Round your per unit computations to the nearest cent, if required. If an amount box does not require an entry, leave it blank.
| Normal capacity for the month 6,200 hrs. | ||||
| Actual production for the month 6,600 hrs. | ||||
| Actual | Unfavorable Variances | Favorable Variances | ||
| Variable costs: | ||||
| Indirect factory wages | ||||
| Power and light | ||||
| Indirect materials | ||||
| Total variable cost | ||||
| Fixed costs: | ||||
| Supervisory salaries | ||||
| Depreciation of plant and equipment | ||||
| Insurance and property taxes | ||||
| Total fixed cost | ||||
| Total factory overhead cost | ||||
| Total controllable variances | ||||
| Net controllable varience-unfavorable | ||||
| Volume variance-favorable | ||||
| Excess hours used over normal at the standard rate for fixed factory overhead | ||||
| Total factory overhead cost variance favorable |
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