Tiger 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 8,400 hours. 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 $30,240 20,160 16,800 $20,000 36,200 15,200 $ 67,200 71,400 $138,600 During May, the department operated at 8,860 standard hours, and the factory overhead costs incurred were indirect factory wages, $32,400; power and light, $21,000; indirect materials, $18,250; supervisory salaries, $20,000; depreciation of plant and equipment, $36,200; and insurance and property taxes, $15,200. Instructions Prepare a factory overhead cost variance report for May. To be useful for cost control, the budgeted amounts should be based on 8,860 hours.
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.
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![Problem 23-4A
TIGER EQUIPMENT INC.
Factory Overhead Cost Variance Report-Welding Department For the Month Ended May 31
Normal capacity for the month
8,400 hours
Actual production for the month
8,860 hours
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 variance-unfavorable
Volume variance-favorable:
Excess hours used over normal at the standard
rate for fixed factory overhead:
Total factory overhead cost variance-favorable
Budget
Actual
Variances
Favorable Unfavorable](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe584b5cb-3ef6-41cf-94a3-2a7a15e7ab21%2F734069f3-d777-48d2-916e-4c00175e17c6%2Fgh7q86f_processed.png&w=3840&q=75)
![PR 23-4A Factory overhead cost variance report
OBJ. 4
Tiger 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 8,400
hours.
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
$30,240
20,160
16,800
$20,000
36,200
15,200
$ 67,200
71,400
$138,600
During May, the department operated at 8,860 standard hours, and the factory overhead
costs incurred were indirect factory wages, $32,400; power and light, $21,000; indirect
materials, $18,250; supervisory salaries, $20,000; depreciation of plant and equipment,
$36,200; and insurance and property taxes, $15,200.
Instructions
Prepare a factory overhead cost variance report for May. To be useful for cost control,
the budgeted amounts should be based on 8,860 hours.
Warren, C. S., Jonick, C. A., & Schneider, J. S., (2021). Accounting (28 ed.). Boston, MA: Cengage.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe584b5cb-3ef6-41cf-94a3-2a7a15e7ab21%2F734069f3-d777-48d2-916e-4c00175e17c6%2F0whr1nt_processed.png&w=3840&q=75)
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