Question

Problem 2 Speed Control Inc. Manufactures carburetors and uses a standard cost system.
The standard factory overhead costs per carburetor are based on machine hours and are as follows:
Variable overhead (3 hours at $4/hour)	$12
Fixed overhead (3 hours at $5/hour**)	15
Total overhead cost per unit	27
**Based on an expectation of 12,000 carburetors per month.
The following additional information is available for the month of December:
10,000 carburetor s were produced although 12,000 had been scheduled for production.
32,000 machine hours were used
The standard direct labor rate is $9 per hour
The standard direct labor time per unit is 4 hours.
Variable overhead costs were $125,000
Fixed overhead costs were $185,000
Required:
a.       (6 points) Calculate the spending and efficiency variances for variable overhead.
b. (6 points) Calculate the spending and production volume variances for fixed overhead.
c. (8 points) Prepare journal entries for recording (using the standard cost system from part a):
1) the actual variable overhead costs,
2) the allocation of variable overhead costs to WIP, and
3) the spending and efficiency variances for variable overhead.

Answer 1

a)Variable overhead spending variance = Actual variable overhead -[Actual machine hour *standard variable overhead rate per MH]

       125000 - [32000*4]

       125000- 128000

       - 3000 Favorable    (enter as 3000 F if needs to be entered as positive value]

Variable overhead efficiency variance = standard variable overhead rate per MH [Actual machine hours- standard machine hours for actual output]

              4 [32000 - (10000*3)]

             4 [32000-30000]

             4 * 2000

              8000 unfavorable

b)Fixed overhead spending variance= Actual fixed overhead- Budgeted fixed overhead

                      = 185000 - 180000

                      = 5000 U

#Budgeted fixed overhead = 12000 *15 standard fixed overhead rate per unit = 180000

Fixed overhead volume variance= Budgeted fixed overhead - Fixed overhead allowed for actual production

                    = 180000 - (10000*15)

                   = 180000-150000

                    = 30000 U

c

Date	Account title	Debit	credit
1	Factory overhead	125000
	Accounts payable /cash		125000
	[Being actual variable overhead cost incurred]
2	work in process inventory	120000
	Factory overhead (10000units *12 standard cost)		120000
3	Variable overhead efficiency variance	8000
	Variable overhead spending variance		3000
	Factory overhead		5000