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Problem 23-3B
Flexible budget preparation; computation of materials, labor, and
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Suncoast Company set the following standard costs for one unit of its product.
Direct materials (6 lbs. @ $5 per lb.) …………………. $ 27
Direct labor (2 hrs. @ $17 per hr.) ……………………... 18
Overhead (2 hrs. @ $ 18.50 per hr.) ……………………. 24
Total
The predetermined overhead rate ($ 16.00 per direct labor hour) is based on an expected volume of 75% of the factory’s capacity of 20,000 units per month. Following are the company’s budgeted overhead costs per month at the 75% capacity level.
Overhead Budget (75% Capacity)
Variable overhead costs
Indirect materials ……………………………………… $ 22,000
Indirect labor …………………………………………… 90,000
Power …………………………………………………… 22,500
Repairs and maintenance ……………………………….. 45,000
Total variable overhead costs …………………………… $180,000
Fixed overhead costs
Depreciation- Machinery ………………………………… 72,000
Taxes and insurance ……………………………………… 18,000
Supervision ………………………………………………... 66,000
Total fixed overhead costs …………………………………180,000
Total overhead costs ………………………………………………$ 360,000
The company incurred the following actual costs when it operated at 75% of capacity in October.
Direct materials (91,000 lbs. @ $5.10 per lb) …………………… $ 420,900
Direct labor (30,500 hrs. @ $ 17.25 per hr.) ……………………… 280,440
Overhead costs
Indirect materials …………………………………………. $ 21,600
Indirect labor ………………………………………………. 82,260
Power ………………………………………………………. 23,100
Repairs and maintenance …………………………………… 46,800
Depreciation-Building ……………………………………… 24,000
Depreciation-Machinery …………………………………….. 75,000
Taxes and insurance …………………………………………. 16,500
Supervision …………………………………………………… 66,000
355,260
Total costs ……………………………………………………………_____
$1,056,600 _______
Required
- Examine the monthly overhead budget to (a) determine the costs per unit for each variable overhead item and its total per unit costs and (b) identity the total fixed costs per month.
- Prepare flexible overhead budgets (as in Exhibit 23.12) for October showing the amounts of each variable and fixed cost at the 65%, 75%, and 85% capacity levels.
- Compute the direct materials cost variance, including its price and quantity variances.
- Compute the direct labor cost variance, including its rate and efficiency variances.
- Prepare a detailed overhead variance report (as in Exhibit 23.16) that shows the variances for individual items of overhead.
EXHIBIT 23.12 Flexible Overhead Budgets
EXHIBIT 23.16 Overhead Variance Report
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Chapter 23 Solutions
WORKING PAPERS F/ FUND ACCOUNTING
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