Question

Raw materials$ 14.00 Direct labor (2 direct labor hours × $8.00 per hour)16.00 Manufacturing overhead (2 direct labor hours × $12.80 per hour)25.60 Total standard cost per unit$ 55.60 The manufacturing overhead rate is based on a normal capacity level of 600,000 direct labor hours. (Normal capacity is defined as the level of capacity needed to satisfy average customer demand over a period of two to four years. Operationally, this level of capacity would take into consideration sales trends and both seasonal and cyclical factors affecting demand.) The firm has the following annual manufacturing overhead budget: Variable$ 4,140,000 Fixed3,540,000 $ 7,680,000 Edney incurred $435,150 in direct labor cost for 54,400 direct labor hours to manufacture 26,000 units in November. Other costs incurred in November include $314,000 for fixed manufacturing overhead and $355,500 for variable manufacturing overhead. Required: 1. Determine each of the following for November. [Note: Indicate whether each variance is favorable (F) or unfavorable (U).] a. The variable overhead spending variance. b. The variable overhead efficiency variance. c. The fixed overhead spending (budget) variance. d. The fixed overhead production volume variance. e. The total amount of under- or overapplied manufacturing overhead (i.e., the total manufacturing overhead cost variance for the period). 2. Prepare the following four journal entries: (a) to record actual variable overhead costs, (b) to record actual fixed overhead costs, (c) to record standard overhead costs applied to production, and (d) to record all four overhead cost variances. The company uses a single account, Factory Overhead, to record all overhead costs. Assume that the actual variable manufacturing overhead consists of utilities payable of $169,500, indirect materials of $118,000 (all materials, direct and indirect, are recorded in a single account, Materials Inventory), and $68,000 depreciation on factory equipment (determined under the units-of-produc

Answer 1

1.
a. Variable overhead spending variance:
Actual variable overhead costs: $355,500
Standard variable overhead costs (54,400 direct labor hours x $12.80 per hour): $696,320
Variable overhead spending variance: $340,820 U

b. Variable overhead efficiency variance:
Standard variable overhead costs (54,400 direct labor hours x $12.80 per hour): $696,320
Standard variable overhead costs (26,000 units x 2 direct labor hours x $12.80 per hour): $665,600
Variable overhead efficiency variance: $30,720 U

c. Fixed overhead spending (budget) variance:
Actual fixed overhead costs: $314,000
Budgeted fixed overhead costs: $295,000
Fixed overhead spending variance: $19,000 U

d. Fixed overhead production volume variance:
Budgeted fixed overhead costs: $295,000
Fixed overhead applied to production (26,000 units x $12.80 per direct labor hour x 2 direct labor hours): $665,600
Fixed overhead production volume variance: $370,600 F

e. Total manufacturing overhead cost variance:
Total actual manufacturing overhead costs: $355,500 + $314,000 = $669,500
Total standard manufacturing overhead costs (variable + fixed): $7,680,000
Total manufacturing overhead cost variance: $7,010,500 U

2.
a. Journal entry to record actual variable overhead costs:
Factory Overhead $355,500
Accounts Payable $355,500

b. Journal entry to record actual fixed overhead costs:
Factory Overhead $314,000
Accounts Payable $314,000

c. Journal entry to record standard overhead costs applied to production:
Work in Process $665,600
Factory Overhead $665,600

d. Journal entry to record all four overhead cost variances:
Factory Overhead $7,010,500
Cost of Goods Sold $7,010,500