Overhead Variances Swan is a specialty chemical produced in batches. Normal denominator volume is 100 batches per week. The weekly flexible budget for indirect costs is $1600 plus $5 per standard hour of direct labor. Indirect costs are absorbed on the basis of standard hours of direct labor.

Overhead Variances Data for the week just ended are: (1) Production amounted to 103 batches (2) 315 hours of direct labor were used, costing $2,472. (3) Standards allow 3 hours of DL per batch (4) Actual variable overhead for the week was $1,550 (5) Actual fixed overhead for the week was $3,700

Relevant Costs: Adding and Dropping Products What is the contribution lost? What is the change in Fixed costs? Costs that will simply be assigned to other activities (i.e. unavoidable costs) should NOT be assumed to go away (obvious but not always self-evident during an exam).

C-V-P Analysis: Breakeven An object can be sold for $10. The variable cost of manufacturing is $3 and that of selling and distribution is $1. Fixed costs are $120,000 p.a. Tax rates are 40%. Compute BEV. 120,000/[10-3-1] = 20000 Compute target sales for profit of $150,000. 150,000/[(1-.4)*6] + 20000 = 61,667

C-V-P Analysis: Breakeven Compute BEV if tax rates change to 50%. BEV is independent of taxes -- why?? Compute target sales for profit of $150,000 when tax rate is 50%. 150000/[(1-.5)*6] + 20000 = 70,000