Question
The Lambda Company uses a job costing system to accumulate its production costs. An annual predetermined overhead rate based on direct labor-hours is used to
The Lambda Company uses a job costing system to accumulate its production costs. An annual predetermined overhead rate based on direct labor-hours is used to apply overhead to individual jobs. An estimate of overhead costs at different volumes is presented below.
Direct Labor Hours | 100,000 | 120,000 | 140,000 |
Variable Overhead Costs | $325,000 | $390,000 | $455,000 |
Fixed Overhead Costs | 216,000 | 216,000 | 216,000 |
Total Overhead | $541,000 | $606,000 | $671,000 |
The expected volume is 120,000 direct labor-hours for the entire year which will be used to apply overhead. The following data is for November. Jobs 50 and 51 were completed during November.
Inventories, November 1:
Direct Materials and supplies | $10,500 |
Work in Process (job 50) | 54,000 |
Finished Goods (job 49) | 112,000 |
Purchases:
Direct materials | $135,000 |
Factory supplies | 15,000 |
Requisitioned for production
Direct Materials, Job 50 | $45,000 |
Direct Materials, Job 51 | 37,500 |
Direct Materials, Job 52 | 25,500 |
Supplies (overhead) | 12,000 |
Factory direct labor-hours:
Job 50 | 3,500 hours |
Job 51 | 3,000 hours |
Job 52 | 2,000 hours |
Other information:
1) Actual manufacturing labor costs:
Direct labor wages (8,500 hours) | $6.00 per hour |
Indirect labor wages | $15,000 |
Supervisory salaries | $6,000 |
2) Actual building occupancy costs:
Manufacturing facilities | $6,500 |
Sales and administrative | $2,500 |
3) Actual manufacturing equipment costs:
Power | $4,000 |
Repair and maintenance | $1,500 |
Other | $2,500 |
Requirements:
Create a report that compares the actual overhead with the applied overhead. Indicate whether the overhead is over or under applied. Calculate the Fixed Overhead Volume Variance for November.
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