Chapter 23, Problem 22E

To determine

Overhead Controllable Variance

The difference between the total actual and budgeted overhead is known as Overhead Controllable Variance. It is the combination of both fixed and variable overhead variances.

Overhead Volume Variance

The difference between the total fixed overhead applied and total budgeted overhead is known as Overhead Volume Variance.

1. The overhead controllable variance and find whether it is favorable or unfavorable
2. The overhead volume variance and find whether it is favorable or unfavorable.
3. Make a report on overhead variance with 9,000 units of activity level.

Answer to Problem 22E

Solution:

1. The overhead controllable variance is $2,300 and it is favorable
2. The overhead volume variance is $6,000 and it is Favorable.
3. Overhead variance report at the actual activity level of 9000 units

BLAZE CORP. Overhead Variance Report for the month ended March 31st.
Planned production volume	80% capacity
Actual production volume	90% capacity
Volume variance	$ 6,000	Favorable

Controllable Variance	Flexible budget	Actual result	Variance	Favorable / Unfavorable
Variable overhead cost
Indirect materials	$11,250	$10,000	$1,250	Favorable
Indirect labor	$18,000	$16,000	2,000	Favorable
Power	$4,500	$4,500	0	No Variance
Maintenance	$2,250	$3,000	$750	Unfavorable
Total variable cost	$36,000	$33,500	$2,500	Favorable
Fixed overhead cost
Rent of factory building	$12,000	$12,000	0	No variance
Depreciation- Machinery	$20,000	$19,200	$800	Favorable
Taxes and insurance	$2,400	$3,000	$600	Unfavorable
Supervisory salary	$13,600	$14,000	$400	Unfavorable
Total fixed cost	$48,000	48,200	$200	Unfavorable
Total Overhead cost	$84,000	99,250	$2,300	Favorable

Explanation of Solution

Overhead controllable variance computation

Controllable Variance
Actual overhead total		$ 81,700
Flexible budget overhead total
Variable	$36,000
Fixed	$48,000
Total		$ 84,000
Overhead controllable variance		$ 2,300	Favorable

Overhead volume variance computation

Volume Variance
Budgeted fixed overhead cost (32,000 X $1.50)	$48,000
Applied Fixed overhead cost (36,000 X $1.50)	$54,000
Volume variance	$ 6,000	Favorable

Computation of applied fixed overhead cost
$$

3. Flexible budget at 90% capacity (9,000 units)

JAMES CORP. Flexible Overhead Budget for the month ended May 31st.
	Variable overhead per unit	Fixed overhead per month	Flexible Budget at 90% capacity (9,000 units)
Variable overhead cost
Indirect materials	$1.25		$11,250
Indirect labor	$2.00		$18,000
Power	$0.50		$4,500
Maintenance	$0.25		$2,250
Total variable cost	$4.00		$36,000
Fixed overhead cost
Rent of factory building		$12,000	$12,000
Depreciation- Machinery		$20,000	$20,000
Taxes and insurance		$2,400	$2,400
Supervisory salary		$13,600	$13,600
Total fixed cost		$48,000	$48,000
Total Overhead cost			$84,000

Conclusion

From the above it is clear with the following;-
The overhead controllable variance is favorable with $ 2,300
The volume variance is favorable with $ 6,000