Question

The Ramirez Company uses standard costing in its manufacturing plant for auto parts. The standard cost of a particular auto​ part, based on a denominator level of 4,200 output units per​ year, included 5 ​machine-hours of variable manufacturing overhead at $9 per hour and 5 ​machine-hours of fixed manufacturing overhead at $17 per hour. Actual output produced was 4,600 units. Variable manufacturing overhead incurred was $260,000. Fixed manufacturing overhead incurred was $375,000. Actual ​machine-hours were 27,500.

Requirements

1.	Prepare an analysis of all variable manufacturing overhead and fixed manufacturing overhead​ variances, using the​ 4-variance analysis.
2.	Prepare journal entries using the​ 4-variance analysis.
3.	Describe how individual fixed manufacturing overhead items are controlled from day to day.
4.	Discuss possible causes of the fixed manufacturing overhead variances.

Requirement 1. Prepare an analysis of all variable manufacturing overhead and fixed manufacturing overhead​ variances, using the​ 4-variance analysis. Begin by calculating the following amounts for the variable overhead.

		Actual Input
	Actual Costs	x	Flexible	Allocated
	Incurred	Budgeted Rate	Budget	Overhead
Variable OH

Now complete the table below for the fixed manufacturing overhead.

		Same Budgeted
		Lump Sum
	Actual Costs	Regardless of	Flexible	Allocated
	Incurred	Output Level	Budget	Overhead
Fixed OH

Now complete the​ 4-variance analysis using the amounts you calculated above. ​(If no variance​ exists, leave the dollar value blank. Label the variance as favorable​ (F), unfavorable​ (U) or never a variance​ (N).)

4-Variance	Spending		Efficiency		Production-Volume
Analysis	Variance		Variance		Variance
Variable OH
Fixed OH

Requirement 2. Prepare journal entries using the​ 4-variance analysis. Record the actual variable

manufacturing overhead incurred. ​(Record debits​ first, then credits. Exclude explanations from any journal​ entries.)

Answer 1

Budget for fixed manufacturing overhead	$        357,000
4200*5*17
4-Variance	Spending		Efficiency		Production-
Analysis	Variance		Variance		Volume Variance
Variable	12500	U	40500	U	Never a variance
Fixed	18000	U	Never a variance		34000	F
Variable MOH
Actual costs incurred(a)		Actual input * budgeted rate(b)		Flexible budget('c)		Allocated overhead(d)
		27500*9		4600*5*9		4600*5*9
260000		247500		207000		207000
Spending variance	12500	U		Never a variance(c-d)
(a-b)
Efficiency variance	40500	U
(b-c)
Fixed MOH
Actual costs incurred(a)		Budgeted lump sum(b)		Flexible budget('c)		Allocated overhead(d)
		4200*17*5		4200*17*5		4600*5*17
375000		357000		357000		391000
Spending variance	18000	U
(a-b)		Never a variance(b-c)
Production volume variance	34000	F
(c-d)
Ques 2
Particulars	debit	credit
Variable Manufacturing Overhead Control	260000
Accounts Payable Control and other accounts		260000
Work-in-Process Control	207000
Variable Manufacturing Overhead Allocated		207000
Variable Manufacturing Overhead Allocated	207000
Variable Manufacturing Overhead Spending Variance	12500
Variable Manufacturing Overhead Efficiency Variance	40500
Variable Manufacturing Overhead Control		260000
Fixed Manufacturing Overhead Control	375000
Wages Payable Control, Accumulated Depreciation control		375000
Work-in-Process Control	391000
Fixed Manufacturing Overhead Allocated		391000
Fixed Manufacturing Overhead Allocated	391000
Fixed Manufacturing Overhead Spending Variance	18000
Fixed Manufacturing Overhead Production-Volume Variance		34000
Fixed Manufacturing Overhead Control		375000