Chapter 13, Problem 13.7P

To determine

Concept Introduction:

The variable factory overhead controlled variance is difference between the budgeted and actual variable factory overhead.

The fixed factory overhead volume variance is the difference between the standard fixed factory overhead at actual production and at $100\%$ of normal capacity.

The sum of variable overhead controlled variance and fixed factory overhead volume variance is the factory overhead cost variance.

To Prepare:

The factory overhead cost variance report.

Answer to Problem 13.7P

The net controllable variance is $\$390$ favorable.

Explanation of Solution

Seabury Inc
For the month of October
Productive capacity for the month of ( $100\%$ normal) $25,000hours$
Actual production for the month $23,500hours$
Particulars	Budgeted (at actual production)	Actual	Variance
			Favorable	Unfavorable
Variable factory overhead cost:
Indirect factory labor (W.N. $1$)	$\$141,000$	$\$140,500$	$\$500$
Power and light ((W.N. $2$)	$\$27,730$	$\$28,600$		$\$870$
Indirect Material ((W.N. $3$)	$\$15,980$	$\$15,220$	$\$760$
Total variable factory overhead cost	$\$184,710$	$\$184,320$
Fixed factory overhead costs:
Supervisory salaries	$\$125,000$	$\$125,000$
Depreciation	$\$49,000$	$\$49,000$
Insurance and property taxes	$\$29,750$	$\$29,750$
Total fixed factory overhead costs	$\$203,750$	$\$203,750$
Total factory overhead cost	$\$388,460$	$\$388,070$
Total controllable variances			$\$1,260$	$\$870$
Net controllable variance-favorable				$\$390$

Working notes:

$1.$ Computation of indirect factory wages for $\text{23,500 hours}$

Indirect factory wages $\$150,000$ is for $25,000\text{ hours}$. So, the indirect factory wages for $23,500\text{ hours}$ is as follows:

$\begin{array}{c}\text{Indirect factory wages}=\$150,000\times \frac{23,500}{25,000}\\ =\$141,000\end{array}$

$2.$ Computation of power and light for $\text{23,500 hours}$

Power and light $\$29,500$ is for $25,000\text{ hours}$. So, the indirect factory wages for $23,500\text{ hours}$ is as follows:

$\begin{array}{c}\text{Power \& light}=\$29,500\times \frac{23,500}{25,000}\\ =\$27,730\end{array}$

$3.$ Computation of indirect materials for $\text{23,500 hours}$

Indirect material $\$17,000$ is for $25,000\text{ hours}$. So, the indirect factory wages for $23,500\text{ hours}$ is as follows:

$\begin{array}{c}\text{Indirect material}=\$17,000\times \frac{23,500}{25,000}\\ =\$15,980\end{array}$