Question

1. Prudhomme Company manufactures a single model of sunglasses. Prudhomme uses a product costing system and allocates overhead using a traditional costing system with a single predetermined overhead rate based on machine hours. At 1/1/20, the company's budgeted overhead for 2020 was $5.7 million, and the company expected to use 375,000 machine hours during the year. During 2020, Prudhomme actually used 382,500 machine hours and incurred actual overhead costs of $5.73 million. Assuming that the overhead variance is immaterial, prepare the journal entry to dispose of the overhead variance at 12/31/20.

2. Alaphilippe Company produces two products: Standard watches and Deluxe watches. Alaphilippe uses a product costing system and allocates overhead using an activity-based costing system. The company's 2020 budgeted overhead and budgeted driver unit consumption (pooled across products) is as follows: 

 Actual driver unit consumption by product during 2020 is as follows: 

Assume all driver unit consumption occurs on 7/1/20. What journal entry should the company record on 7/1/20?

Answer 1

1. Journa entry to dispose if immaterial variance:

Particulars	Overhead ($)	Hours	Overhead per hour ($)
Budgeted	57,00,000	3,75,000	15.20
Actual	57,30,000	3,82,500	14.98
Variance Booked (382,500 * 15.20)	58,14,000
Actual Overhead		57,30,000
Overhead Variance		84,000
Journa entry:
Manufacturing Overheads        Dr	$84,000
To Cost of goods sold		$84,000

2. Activity based costing:

Activity	Budgeted OH	Driver	Budgeted Driver Unit Consumption	OH per Unit of Driver
Maintenance	$6,00,000	Maintenance Hours	30,000	$20
Engineering Support	$9,00,000	Engineering Hours	45,000	$20
Materials Handling	$12,00,000	Inventory Moves	60,000	$20
Setups	$7,50,000	# Setups	600	$1,250
Purchasing	$4,50,000	# Orders	2,250	$200
Receiving	$3,00,000	# Orders	7,500	$40
Paying Suppliers	$3,00,000	# Invoices	7,500	$40
	$45,00,000
Actual Consumption:
	Standard	Delux
Driver	Actual Driver Unit Consumption	Rate	Amount	Actual Driver Unit Consumption	Rate	Amount
Maintenance Hours	5,700	$20	$1,14,000	25,200	$20	$5,04,000
Engineering Hours	12,825	$20	$2,56,500	33,075	$20	$6,61,500
Inventory Moves	14,250	$20	$2,85,000	47,250	$20	$9,45,000
# Setups	57	$1,250	$71,250	567	$1,250	$7,08,750
# Orders	713	$200	$1,42,600	1,575	$200	$3,15,000
# Orders	2,850	$40	$1,14,000	4,725	$40	$1,89,000
# Invoices	3,563	$40	$1,42,520	3,938	$40	$1,57,520
		Total	$11,25,870			$34,80,770
		Grand Total	$46,06,640
Journa entry:
Cost of goods sold         Dr	$46,06,640
To Manufacturing Overheads		$46,06,640