Corporation prepared the following performance report for variable overhead cost
ID: 2502884 • Letter: C
Question
Corporation prepared the following performance report for variable overhead costs for the last
quarter of the year. Machine hours are the cost driver for all overhead costs.
Cost Driver(Machine Hours) Actual 38,000 Static Budget 35,000 Variances
Variable Overhead Costs:
Utilities $15,700 $14,000 $1,700 U
Indirect Labor 86,500 80,500 6,000 U
Supplies 26,000 21,000 5,000 U
Maintenance 44,900 42,000 2,900 U
Total Variable Overhead Costs $173,100 $157,500 $15,600 U
The cost formulas used for the variable overhead costs are:
Variable Overhead Costs Cost Formula
Utilities $0.40 per machine hour
Indirect Labor $2.30 per machine hour
Supplies $0.60 per machine hour
Maintenance $1.20 per machine hour
Your boss called you into the office and reprimanded you for the unfavorable variances. The boss says you
are fired unless you can explain why the variances are all unfavorable.
.
Required:
Calculate the flexible budget variances and the activity-level variances for each cost
Explanation / Answer
Cost Driver(Machine Hours) Actual 38,000 Flexible Budget 38,000 Variances Variable Overhead Costs: Utilities 15700 15200 500 U Indirect Labor 86500 87400 900 F Supplies 26000 22800 3200 U Maintenance 44900 45600 700 F Total Variable Overhead Costs 173100 171000 2100 U