James Corp. applies overhead on the basis of direct labor hours. For the month of May, the company planned production of 8,000 units (80% of its production capacity of 10,000 units) and prepared the following overhead budget: Operating Levels Overhead Budget 80% Production in units 8,000 Standard direct labor hours 24,000 Budgeted overhead Variable overhead costs Indirect materials $ 15,000 Indirect labor 24,000 Power 6,000 Maintenance 3,000 Total variable costs 48,000 Fixed overhead costs Rent of factory building 15,000 Depreciation—Machinery 10,000 Supervisory salaries 19,400 Total fixed costs 44,400 Total overhead costs $ 92,400 During May, the company operated at 90% capacity (9,000 units) and incurred the following actual overhead costs: Overhead costs (actual) Indirect materials $ 15,000 Indirect labor 26,500 Power 6,750 Maintenance 4,000 Rent of factory building 15,000 Depreciation—Machinery 10,000 Supervisory salaries 22,000 Total actual overhead costs $ 99,250 1. Compute the overhead controllable variance and classify it as favorable or unfavorable. 2. Compute the overhead volume variance and classify it as favorable or unfavorable. 3. Prepare an overhead variance report at the actual activity level of 9,000 units.

James Corp. applies overhead on the basis of direct labor hours. For the month of May, the company planned production of 8,000 units (80% of its production capacity of 10,000 units) and prepared the...

James Corp. applies overhead on the basis of direct labor hours. For the month of May, the company planned production of 8,000 units (80% of its production capacity of 10,000 units) and prepared the following overhead budget:

	Operating Levels
Overhead Budget	80%
Production in units		8,000
Standard direct labor hours		24,000
Budgeted overhead
Variable overhead costs
Indirect materials	$	15,000
Indirect labor		24,000
Power		6,000
Maintenance		3,000
Total variable costs		48,000
Fixed overhead costs
Rent of factory building		15,000
Depreciation—Machinery		10,000
Supervisory salaries		19,400
Total fixed costs		44,400
Total overhead costs	$	92,400

During May, the company operated at 90% capacity (9,000 units) and incurred the following actual overhead costs:

Overhead costs (actual)
Indirect materials	$	15,000
Indirect labor		26,500
Power		6,750
Maintenance		4,000
Rent of factory building		15,000
Depreciation—Machinery		10,000
Supervisory salaries		22,000
Total actual overhead costs	$	99,250

1. Compute the overhead controllable variance and classify it as favorable or unfavorable.

2. Compute the overhead volume variance and classify it as favorable or unfavorable.

3. Prepare an overhead variance report at the actual activity level of 9,000 units.

Jun 06, 2022

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James Corp. applies overhead on the basis of direct labor hours. For the month of May, the company planned production of 8,000 units (80% of its production capacity of 10,000 units) and prepared the...

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