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Blaze Corp. applies overhead on the basis of direct labor hours. For the month of March, the company planned production of 9,600 units (80% of
Blaze Corp. applies overhead on the basis of direct labor hours. For the month of March, the company planned production of 9,600 units (80% of its production capacity of 12,000 units) and prepared the following budget.
Operating Levels | |||
Overhead Budget | 80% | ||
Production in units | 9,600 | ||
Standard direct labor hours | 24,000 | ||
Budgeted overhead | |||
Variable overhead costs | |||
Indirect materials | $ | 10,000 | |
Indirect labor | 19,000 | ||
Power | 5,000 | ||
Maintenance | 2,000 | ||
Total variable costs | 36,000 | ||
Fixed overhead costs | |||
Rent of factory building | 13,000 | ||
DepreciationMachinery | 20,000 | ||
Taxes and insurance | 2,400 | ||
Supervisory salaries | 12,600 | ||
Total fixed costs | 48,000 | ||
Total overhead costs | $ | 84,000 | |
During March, the company operated at 90% capacity (10,800 units), and it incurred the following actual overhead costs.
Overhead costs (actual) | |||
Indirect materials | $ | 10,000 | |
Indirect labor | 19,000 | ||
Power | 5,625 | ||
Maintenance | 2,500 | ||
Rent of factory building | 13,000 | ||
DepreciationMachinery | 16,000 | ||
Taxes and insurance | 2,900 | ||
Supervisory salaries | 18,000 | ||
Total actual overhead costs | $ | 87,025 | |
1. Compute the overhead controllable variance. 2. Compute the overhead volume variance. 3. Prepare an overhead variance report at the actual activity level of 9,000 units.
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