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Problem 21-3A Flexible budget preparation; computation of materials, labor, and overhead variances; and overhead variance report LO P1, P2, P3, C2

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Antuan Company set the following standard costs for one unit of its product.

Direct materials (5.0 Ibs. @ $5.00 per Ib.)	$	25.00
Direct labor (1.6 hrs. @ $12.00 per hr.)		19.20
Overhead (1.6 hrs. @ $18.50 per hr.)		29.60
Total standard cost	$	73.80

The predetermined overhead rate ($18.50 per direct labor hour) is based on an expected volume of 75% of the factorys capacity of 20,000 units per month. Following are the companys budgeted overhead costs per month at the 75% capacity level.

Overhead Budget (75% Capacity)

Variable overhead costs
Indirect materials	$	15,000
Indirect labor		75,000
Power		15,000
Repairs and maintenance		30,000
Total variable overhead costs				$	135,000
Fixed overhead costs
Depreciationbuilding		23,000
Depreciationmachinery		72,000
Taxes and insurance		17,000
Supervision		197,000
Total fixed overhead costs					309,000
Total overhead costs				$	444,000

The company incurred the following actual costs when it operated at 75% of capacity in October.

Direct materials (76,500 Ibs. @ $5.20 per lb.)				$	397,800
Direct labor (29,000 hrs. @ $12.30 per hr.)					356,700
Overhead costs
Indirect materials	$	41,800
Indirect labor		176,900
Power		17,250
Repairs and maintenance		34,500
Depreciationbuilding		23,000
Depreciationmachinery		97,200
Taxes and insurance		15,300
Supervision		197,000			602,950
Total costs				$	1,357,450

References

Section BreakProblem 21-3A Flexible budget preparation; computation of materials, labor, and overhead variances; and overhead variance report LO P1, P2, P3, C2

Problem 21-3A Part 1&2

Required:
1&2.	Prepare flexible overhead budgets for October showing the amounts of each variable and fixed cost at the 65%, 75%, and 85% capacity levels and classify all items listed in the fixed budget as variable or fixed.

Problem 21-3A Part 3

3.	Compute the direct materials cost variance, including its price and quantity variances.

Problem 21-3A Part 4

4.	Compute the direct labor cost variance, including its rate and efficiency variances.

Problem 21-3A Part 5

5.	Prepare a detailed overhead variance report that shows the variances for individual items of overhead.

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