Controllable Variances and Bonus (SIA, adapted) At Stephens’ Limited all departmental standard cost variances are classified as being controllable or noncontrollable by the department foreman in addition to being favorable or unfavorable. Controllable variances are totaled for each department and if the net amount is favorable, the foreman receives a bonus of 5 percent of the net favorable controllable variance. Of course, if unfavorable controllable variances are larger, no bonus is paid. The departmental foreman has no control over wage rates or volume of production, but he does control all overhead costs in relation to a flexible budget.

For Department XY, the budgeted overhead is $48,000 per month plus

$2 per direct-labor hour. Material-cost variances are negligible for the month.

The actual direct-labor cost for April was $69,000 (15,000 hours @ $4.60 per hour). Actual factory overhead for April was $77,500. The department’s output for April had a standard cost of:

Labor 15,500 hours @ $4.50 = §$ 69,750 Overhead 15,500 hours @ $5.00 = §$ 77,500 $147,250 - Compute all the variances that can be computed from the above data presenting the details of all calculations. Indicate whether each variance is controllable or noncontrollable and favorable or unfavorable.
- Calculate the foreman’s bonus, if any.
What are the advantages and disadvantages of this system?