James Corp applies overhead on the basis of direct labor
James Corp. applies overhead on the basis of direct labor hours. For the month of May, the company planned production of 8,000 units (80% of its production capacity of 10,000 units) and prepared the following overhead budget:
During May, the company operated at 90% capacity (9,000 units) and incurred the following actual overhead costs:
Overhead costs
Indirect materials . . . . . . . . . . . . . . . . . . . . . . . . . $15,000
Indirect labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,500
Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,750
Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000
Rent of factory building . . . . . . . . . . . . . . . . . . . . 15,000
Depreciation—machinery . . . . . . . . . . . . . . . . . . 10,000
Supervisory salaries . . . . . . . . . . . . . . . . . . . . . . . 22,000
Total actual overhead costs . . . . . . . . . . . . . . . . . . $99,250
1. Compute the overhead controllable variance.
2. Compute the overhead volume variance.
3. Prepare an overhead variance report at the actual activity level of 9,000 units.
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