Problem 21-3B Flexible budget preparation; computation of materials, labor, and overhead variances; and overhead variance report P1 P2 P3

Suncoast Company set the following standard costs for one unit of its product.

Direct materials (4.5 lbs. @ $6 per lb.)	$27
Direct labor (1.5 hrs. @ $12 per hr.)	18
Overhead (1.5 hrs. @ $16 per hr.)	24
Total standard cost	$69

The predetermined overhead rate ($16.00 per direct labor hour) is based on an expected volume of 75% of the factorys capacity of 20,000 units per month. Following are the companys budgeted overhead costs per month at the 75% capacity level.

Overhead Budget (75% Capacity)
Variable overhead costs
Indirect materials	$22,500
Indirect labor	90,000
Power	22,500
Repairs and maintenance	45,000
Total variable overhead costs		$180,000
Fixed overhead costs
DepreciationBuilding	24,000
DepreciationMachinery	72,000
Taxes and insurance	18,000
Supervision	66,000
Total fixed overhead costs		180,000
Total overhead costs		$360,000

Page 981The company incurred the following actual costs when it operated at 75% of capacity in December.

Direct materials (69,000 lbs. @ $6.10 per lb.)		$ 420,900
Direct labor (22,800 hrs. @ $12.30 per hr.)		280,440
Overhead costs
Indirect materials	$21,600
Indirect labor	82,260
Power	23,100
Repairs and maintenance	46,800
DepreciationBuilding	24,000
DepreciationMachinery	75,000
Taxes and insurance	16,500
Supervision	66,000	355,260
Total costs		$1,056,600

Required

1. Examine the monthly overhead budget to (a) determine the costs per unit for each variable overhead item and its total per unit costs and (b) identify the total fixed costs per month.
2. Prepare flexible overhead budgets (as in Exhibit 21.12) for December showing the amounts of each variable and fixed cost at the 65%, 75%, and 85% capacity levels.

Check (2) Budgeted total overhead at 17,000 units, $384,000

3. Compute the direct materials cost variance, including its price and quantity variances.

(3) Materials variances: Price, $6,900 U; Quantity, $9,000 U

4. Compute the direct labor cost variance, including its rate and efficiency variances.

(4) Labor variances: Rate, $6,840 U; Efficiency, $3,600 U

5. Prepare a detailed overhead variance report (as in Exhibit 21.16) that shows the variances for individual items of overhead.