Exercise 10-16 Overhead Performance Report with Both Spending and Efficiency Variances [LO4, LO7]

The cheque-clearing office of Pay Loans Company is responsible for processing all cheques that come to the company for payment. Managers at the company believe that variable overhead costs are essentially proportional to the number of labour-hours worked in the office, so labour-hours are used as the activity base when preparing variable overhead budgets and performance reports. Data for October, the most recent month, appear below:

Budgeted labour-hours		1,450
Actual labour-hours		1,345
Standard labour-hours allowed for the actual number of cheques processed		1,470

	Cost Formula (per labour-hour)			Actual Costs Incurred in October
Variable overhead costs:
Office supplies	$	0.40		$	490
Staff coffee lounge		0.40			588
Indirect labour		3.40			3,789
Total variable overhead cost	$	4.20		$	4,867

Fixed overhead at Pay Loans Company consists entirely of supervisory salaries and is applied at a rate of $7 per direct labour-hour. Actual fixed overhead costs totalled $7,200 in October, while the flexible budget was $7,000 for the month.

Required:

Prepare an overhead performance report for October for the cheque-clearing office that includes both spending and efficiency variances for variable overhead and the budget variance for fixed overhead. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)

PAY LOANS COMPANY Overhead Performance Report For the Month Ended October 31 Breakdown of the Total Variance Actual Costs Incurred for Flexible Budget Based on 1,345 Labour-Hours Labour-Hours Cost Formula (per labour- 1,345 Labour- hour) Flexible Spending (Budget) Variance Budget Based on 1,470 Efficiency Variance Total Variance Overhead costs Hours Variable overhead costs: Office supplies $ 0.40 490 Staff coffee lounge 0.40 588 Indirect labour 3.40 3,789 $ $ Total variable overhead cost 4.20 4,867 Fixed overhead costs: Supervisory salaries 7,200 Total overhead cost 12,067 E L L LF LL