Question

The Platter Valley factory of Bybee Industries manufactures field boots. The cost of each boot includes direct materials, direct labor, and manufacturing (factory) overhead. The firm traces all direct costs to products, and it assigns overhead cost to products based on direct labor hours.

The company budgeted $10,250 variable factory overhead cost and 2,050 direct labor hours to manufacture 4,100 pairs of boots in March.

The factory used 3,500 direct labor hours in March to manufacture 4,000 pairs of boots and spent $16,600 on variable overhead during the month.

For March, the Platter Valley factory of Bybee Industries budgeted $90,200 for fixed factory overhead cost. Its practical capacity is 2,050 direct labor hours per month (to manufacture 4,100 pairs of boots).

The factory used 3,500 direct labor hours in March to manufacture 4,000 pairs of boots. The actual fixed overhead cost incurred for the month was $93,000.

The Platter Valley factory of Bybee Industries currently uses a four-variance analysis of the total factory overhead cost variance but is thinking of changing to a three-variance analysis.

Required:

1. Compute the total overhead spending variance, the (variable overhead) efficiency variance, and the production volume variance for March and indicate whether each variance is favorable (F) or unfavorable (U).

2. Prepare the appropriate journal entries at the end of March to record each of the following: (a) the total overhead spending variance, (b) the (variable overhead) efficiency variance, and (c) the production volume variance. Assume that all overhead costs are recorded in a single account called "Factory Overhead."

Please show calculations.

Answer 1

A	Budgeted Variable overhead	$    10,250.00
B	Budgeted labour hours	2050
C	Budgeted units	4100
D	Budgeted fixed overhead	$    90,200.00
E	Actual units	4000
F	Actual labour hours	3500
G	Actual variable overheads	$    16,600.00
H	Actual Fixed overheads	$    93,000.00
I	Standard labour hours for actual units	2000		(A/B*E)
J	Standard Variable overhead absorption rate per hour	$               5.00		A/B
K	Standard Variable overhead costs	$    10,000.00		I * J
L	Actual hours x standard variable overhead rate	$    17,500.00		F * J
M	Variable overhead spending variance	$          900.00	F	L - G
N	Variable overhead efficiency variance	$    (7,500.00)	U	K - L
O	Standard fixed overhead rate per hour	$            44.00		D / B
P	Actual hours x standard fixed overhead rate	$ 154,000.00		F * O
Q	Standard fixed overheads	$    88,000.00		O * I
R	Fixed overhead spending variance	$    61,000.00	F	P - H
S	Fixed overhead production volume variance	$ (66,000.00)	U	Q - P
	Journal Entry
	Factory overhead A/c                                                              Dr.	$    10,000.00
	Variable overhead Efficiency variance                            Dr.	$      7,500.00
	To Variable overhead spending variance		$          900.00
	To General Ledger Adjustment A/c		$    16,600.00
	Factory overhead A/c                                                              Dr.	$    88,000.00
	Fixed overhead production volume variance               Dr.	$    66,000.00
	To Fixed overhead spending variance		$    61,000.00
	To General Ledger Adjustment A/c		$    93,000.00