Q1 - 15 marks

Cheques-4-U has a cheque-clearing office that 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

1,360

Actual labour-hours

1,300

Standard labour-hours allowed for the actual number of cheques processed

1,380

Cost Formula

Actual Costs

(per labour-hour)

Incurred in October

Variable overhead costs:

Office supplies

$ 0.90

$ 1,125

Staff coffee lounge

$ 0.20

$ 320

Indirect labour

$ 2.50

$ 2,500

Total variable overhead cost

$ 3.60

$ 3,945

Fixed overhead at Cheques-4-U consists entirely of supervisory salaries and is applied at a rate of $5 per direct labour-hour. Actual fixed overhead costs totalled $5,400 in October, while the flexible budget was $5,000 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.

Ensure you indicate whether each variance is favourable or unfavourable, or a zero variance.