Prepare a factory overhead cost variance report


Problem:

Wells Inc., a manufacturer of construction equipment, prepared the following factory overhead cost budget for the Welding Department for May 2003. The company expected to operate the department at 100% of normal capacity of 3,000 hours.

Variable costs:

Indirect factory wages     $22,800
Power and light                  3,750
Indirect materials              10,200
Total variable cost            $36,750

Fixed costs:
Supervisory salaries                         $67,500
Depreciation of plant and equipment    26,400
Insurance and property taxes               5,100
Total fixed cost                                  99,000

Total factory and overhead cost         $135,750

During May, the department operated at 3,100 hours, and the factory overhead costs incurred were: indirect factory wages, $23,450: power and light, $3,980: indirect materials, $10,600; supervisory salaries, $67,500; depreciation of plant and equipment, $26,400; and insurance and property taxes, $5,100.

Instructions:

Prepare a factory overhead cost variance report for May. To be useful for cost control, the budgeted amounts should be based on 3,100 hours.

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Accounting Basics: Prepare a factory overhead cost variance report
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