Tiger Equipment Inc., a manufacturer of construction equipment, prepared the following factory overhead cost budget for the Welding Department for May of the current year. The company expected to operate the department at 100% of normal capacity of 7,800 hours. Variable costs:
Indirect factory wages $30,240
Power and light 20,160
Indirect materials 16,800
Total variable cost $67,200
Fixed costs:
Supervisory salaries $20,000
Depreciation of plant and equipment 36,200
Insurance and property taxes 15,200
Total fixed cost 71,400
Total factory overhead cost $138,600

During May, the department operated at 8,860 standard hours, and the factory overhead costs incurred were indirect factory wages, $32,400; power and light, $21,000; indirect materials, $18,250; supervisory salaries, $20,000; depreciation of plant and equipment, $36,200; and insurance and property taxes, $15,200.

Required:
Prepare a factory overhead cost variance report for May. To be useful for cost control, the budgeted amounts should be based on 8,860 hours.

Tiger Equipment Inc.

Welding Department

Factory Overhead Cost Variance Report for May

Variable costs:                                  Estimates   Flexible    Actual   Variance

Indirect factory wages                      $30,240    $34,117   $32,400   $1,717  F

Power and light                                   20,160    22,745       21,000    1,745  F

Indirect materials                                16,800      18,954      18,250      704  F

Total variable cost                           $67,200    $75,816    $71,650 $4,166  F

Fixed costs:

Supervisory salaries                       $20,000   $20,000  $20,000    $ 0

Depreciation of plant & equipment 36,200     36,200     36,200       0

Insurance and property taxes          15,200      15,200      15,200       0

Total fixed cost                                  71,400      71,400      71,400        0

Total factory overhead cost        $138,600  $147,216  $143,050  $4,166  F

Explanation:

a) Data and Calculations:

Variable costs:                                  Estimates   Flexible    Actual   Variance

Indirect factory wages                      $30,240    $34,117   $32,400   $1,717  F

Power and light                                   20,160    22,745       21,000    1,745  F

Indirect materials                                16,800      18,954      18,250      704  F

Total variable cost                           $67,200    $75,816    $71,650 $4,166  F

Fixed costs:

Supervisory salaries                       $20,000   $20,000  $20,000    $ 0

Depreciation of plant & equipment 36,200     36,200     36,200       0

Insurance and property taxes          15,200      15,200      15,200       0

Total fixed cost                                  71,400      71,400      71,400        0

Total factory overhead cost        $138,600  $147,216  $143,050  $4,166  F

Flexible costs:

Indirect factory wages = $30,240/7,800 * 8,800 = $34,117

Power and light = $20,160/7,800 * 8,800 = $22,745

Indirect materials = $16,800/7,800 * 8,800 = $18,954

Normal capacity = 7,800 hours (100%)

Actual capacity = 8,800 hours (113%)

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