Question

Activity Index: Standard direct labour hours 2,000 3,200 3,600 4,000 Variable costs Indirect materials $ 4,000 $ 6,400 $ 7,200 $ 8,000 Indirect labour 2,300 3,680 4,140 4,600 Utilities 3,200 5,120 5,760 6,400 Total variable 9,500 15,200 17,100 19,000 Fixed costs Supervisory salaries 1,000 1,000 1,000 1,000 Rent 3,000 3,000 3,000 3,000 Total fixed 4,000 4,000 4,000 4,000 Total costs $13,500 $19,200 $21,100 $23,000 The company applies total overhead on the basis of direct labour hours at $6.00 per direct labour hour and the standard hours per dining chair is 1/2 hour each. The company's actual production was 5,800 dining chairs with 3,000 actual hours of direct labour. Actual overhead was $18,200, of which $4,100 was fixed. Required: a) Calculate the variable overhead budget and fixed overhead variances. Prepare the entries for manufacturing overhead during the period and the entry to recognize the overhead variances at the end of the period

Answer 1

		Activity Index
	Standard Direct Labor Hours	2000	3000	3600	4000
	Variable Cost
	Indirect Material	$    4,000.00	$    6,400.00	$   7,200.00	$   8,000.00
	Indirect Labor	$    2,300.00	$    3,680.00	$   4,140.00	$   4,600.00
	Utilities	$    3,200.00	$    5,120.00	$   5,760.00	$   6,400.00
	Total Variable	$    9,500.00	$ 15,200.00	$ 17,100.00	$ 19,000.00
	Fixed Cost
	Supervisory Salaries	$    1,000.00	$    1,000.00	$   1,000.00	$   1,000.00
	Rent	$    3,000.00	$    3,000.00	$   3,000.00	$   3,000.00
	Total Fixed	$    4,000.00	$    4,000.00	$   4,000.00	$   4,000.00
	Total Cost	$    9,500.00	$ 15,200.00	$ 17,100.00	$ 19,000.00
	Overhead	6	per direct labor hour
	Standard hour per dining chair	1/2Hours
	Actual Production	5800	Dining Chair
	Acctual Direct Labor hours	3000
	Actual Overhead	$ 18,200.00
	Fixed Overhead	$    4,100.00
	Variable Overhead($18200-$4100)	$ 14,100.00
a)	Variable Overhead Variance=Standard Quantity of overhead for actual production at standard rate-Actual variable overhead
	Standard overhead Rate=(Total Variable Overhead)/Standard Hour)=($9500/2000)=$4.75	$            4.75
	Standard Quantity of overhead for actual production=(5800*1/2*$4.75)	$ 13,775.00
	Actual Variable Overhead	$ 14,100.00
	Variable overhead variance	$       325.00	(U)
	Fixed Overhead Variance=Budgeted Overhead-Overapplied
	Overhead=	6	Per direct labor hour
	Variable Overhead	4.75	Per direct labor hour
	Fixed Overhead	1.25	Per direct labor hour
	Budgeted Overhead	4100
	Overhead applied=5800*1/2*$1.25	3625
	Fixed Overhead Variance=($4100-$3625)	475	(U)
b)	General,Journal	Debit	Credit
	Manufacturing Overhead	$ 18,200.00
	To Accounts Payable/Cash		$ 18,200.00
	(Being amount of Overhead incurred)
	Work in Process($13775+$3625)	$ 17,400.00
	To Manufacturing Overhead		$ 17,400.00
	(Being amount of overhead assigns to production)
	Variable Overhead budget variance	$       325.00
	Fixed overhad Variance	$       475.00
	To Manufacturing Overhead		$       800.00
	(Being amount of Overhead variance recognized)