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James Corp. applies overhead on the basis of direct labor hours. For the month of May,...

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Accounting

James Corp. applies overhead on the basis of direct labor hours.For the month of May, the company planned production of 10,000units (80% of its production capacity of 12,500 units) and preparedthe following overhead budget:

Operating Levels
OverheadBudget80%
Production inunits10,000
Standard directlabor hours27,000
Budgetedoverhead
Variableoverhead costs
Indirectmaterials$16,200
Indirectlabor27,000
Power5,400
Maintenance5,400
Total variablecosts54,000
Fixed overheadcosts
Rent of factorybuilding23,000
Depreciation—Machinery10,800
Supervisorysalaries14,800
Total fixedcosts48,600
Total overheadcosts$102,600


During May, the company operated at 90% capacity (11,250 units) andincurred the following actual overhead costs:

Overhead Costs
Indirectmaterials$16,200
Indirectlabor29,875
Power6,075
Maintenance6,710
Rent of factorybuilding23,000
Depreciation—Machinery10,800
Supervisorysalaries18,200
Total actualoverhead costs$110,860


2. Compute the overhead volume variance.
3. Prepare an overhead variance report at theactual activity level of 11,250 units.

Answer & Explanation Solved by verified expert
3.6 Ratings (653 Votes)
Ans1 Computation of Overhead volume variance Particulars Plant Capacity Budget Variance Remarks Overhead Budget 80 90 Production Units 10000 11250 1250 ie For 80 10000 units then for 90 10000080 X 090 11250 units Standard Direct Labour hours 27000 30375 3375 For 10000 units 27000 hrs then Direct labour hour per unit 2700010000 270 hr Hence for 11250 units ie 90 11250 X 270 30375 hrs Budget Overhead Variable Overhead costs Indirect Materials 1620000 1822500 2025 For 10000 units    See Answer
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