Question

dney Company employs a standard cost system for product costing. The per-unit standard cost of its product is:

Raw materials	$	14.00
Direct labor (2 direct labor hours × $8.00 per hour)		16.00
Manufacturing overhead (2 direct labor hours × $10.00 per hour)		20.00
Total standard cost per unit	$	50.00

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	$	3,585,000
Fixed		3,000,000
	$	6,585,000

Edney incurred $436,750 in direct labor cost for 55,200 direct labor hours to manufacture 26,000 units in November. Other costs incurred in November include $362,000 for fixed manufacturing overhead and $391,500 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 $173,500, indirect materials of $134,000 (all materials, direct and indirect, are recorded in a single account, Materials Inventory), and $84,000 depreciation on factory equipment (determined under the units-of-production method). Assume that the fixed manufacturing overhead consists of accrued (i.e, unpaid) salaries of $77,000 and factory depreciation of $285,000. All unpaid salaries should be recorded in a single account, Accrued Payroll.

3. Prepare the appropriate journal entry to close all manufacturing overhead variances to the cost of goods sold (CGS) account. (Assume the cost variances you calculated above are for the year, not the month.)

Answer 1

As per policy, we cannot able to post solution more than four sub parts of question.

Answer 1 & 2

Remarks	Measure	Labor Hour
Budgeted variable cost /direct labor hours budgeted (3585000/600000)	Standard variable overhead rate per labor Hour	$                  5.9750
Actual variable overhead cost / actual labor hours (391500/55200)	Actual variable overhead rate per labor Hour	$                  7.0924
26000 units *2 hour per unit	Standard labor Hours	52000
	Actual labor Hours	55200
	Standard variable overhead rate per labor Hour	5.9750
Less	Actual variable overhead rate per labor Hour	-7.0924
	Difference	-1.1174
Multiply	Actual labor Hours	55200
	Variable overhead spending variance	$               (61,680)
	Indicate	Unfavorable
	Standard labor Hours	52000
Less	Actual labor Hours	-55200
	Difference	-3200
Multiply	Standard variable overhead rate per labor Hour	5.9750
	Variable overhead efficiency variance	$               (19,120)
	Indicate	Unfavorable

Answer 3 & 4

Budgeted Fixed Overheads	250000
Actual Fixed Overheads	362000
Budgeted units	25000
Actual units	26000
Monthly fixed budgeted overhead =3000000/12 months	250000
Annual budgeted units (600000 budgeted labor hour / 2 hour per unit )	300000
Monthly budgeted units (300000/12)	25000
Budgeted Fixed Overhead Rate ( Budgeted Fixed Overheads / Budgeted units)	$                 10.00
Applied Fixed Overhead (Budgeted Fixed Overhead Rate * Actual units)	260000
Less: Budgeted Fixed Overheads	-250000
Fixed Overhead Volume Variance	$               10,000
Indicate	Favorable
Budgeted Fixed Overheads	250000
Less: Actual Fixed Overheads	-362000
Fixed Overhead Budget Variance	$          (112,000)
Indicate	Unfavorable