Question

The Bartlesville plant of Harmon Company produces an industrial chemical. At the beginning of the year, the Bartlesville plant had the following standard cost sheet:
Direct materials
(10 kg @ R1.60 per kg)
R16.00

Direct labour
(0.75 hour @ R18 per hour)
R13.50

Variable overhead
(0.75 hour @ R3 per hour)
R2.25

Fixed overhead
(0.75 hour @ R4 per hour)
R3.00

Standard cost per unit

R34.75

The Bartlesville plant calculates its overhead rates using practical volume, which is 72 000 units. The actual results for the year are as follows:
Units produced
70 000

Direct materials purchased
744 000 kg @ R1.50 per kg

Direct materials used
736 000 kg

Direct labour
56 000 hours @ R17.90 per hour

Variable overhead
R175 400

Fixed overhead
R214 000

Required:

a. Calculate the following:
i. Direct materials price and usage variances
ii. Direct labour rate and efficiency variances
iii. Variable overhead spending and efficiency variances
iv. Fixed overhead spending and volume variances

b. Prepare journal entries for the following:
i. The purchase of direct materials
ii. The issuance of direct materials to production
iii. The addition of direct labour to production
iv. The addition of overheads to production
v. The incurrence of actual overhead costs
vi. Closing off of variances to Cost of Goods Sold

Answer 1

working note 1  

ACTUAL OVERHEAD INCURED = 289400

OVERHEAD APPLIED = 292000

UNDER APPLIED OVERHEAD. = 2600