Factory overhead cost variance reportTiger Equipment Inc., a manufacturer of construction equipment, prepared thefollowing factory overhead cost budget for the Welding Department for May of thecurrent year. The company expected to operate the department at 100% of normalcapacity of 8,400 hours.Variable costs:Indirect factory wages $30,240Power and light 20,160Indirect materials 16,800Total variable cost $ 67,200Fixed costs:Supervisory salaries $20,000Depreciation of plant and equipment 36,200Insurance and property taxes 15,200Total fixed cost 71,400Total factory overhead cost $138,600During May, the department operated at 8,860 standard hours. The factory overheadCosts incurred were indirect factory wages, $32,400; power and light, $21,000; indirectmaterials, $18,250; supervisory salaries, $20,000; depreciation of plant andequipment, $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.
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 $30,240
Power and light 20,160
Indirect materials 16,800
Total variable cost $ 67,200
Fixed costs:
Supervisory salaries $20,000
Depreciation of plant and equipment 36,200
Insurance and property taxes 15,200
Total fixed cost 71,400
Total factory overhead cost $138,600
During May, the department operated at 8,860 standard hours. 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
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