Exercise 9.22 Overhead Variances, Four-Variance Analysis, Journal Entries Laughl

Question

Exercise 9.22

Overhead Variances, Four-Variance Analysis, Journal Entries

Laughlin, Inc., uses a standard costing system. The predetermined overhead rates are calculated using practical capacity. Practical capacity for a year is defined as 1,000,000 units requiring 200,000 standard direct labor hours. Budgeted overhead for the year is $750,000, of which $300,000 is fixed overhead. During the year, 900,000 units were produced using 190,000 direct labor hours. Actual annual overhead costs totaled $800,000, of which $294,700 is fixed overhead.

Required:

1. Calculate the fixed overhead spending and volume variances.

2. Calculate the variable overhead spending and efficiency variances.

3. Prepare the journal entries that reflect the following:

Assignment of overhead to production

Recognition of the incurrence of actual overhead

Recognition of overhead variances

Closing out overhead variances, assuming they are not material

Note: Close the variances with a debit balance first. For compound entries, if an amount box does not require an entry, leave it blank or enter "0".

a.

  

  

  

  

  

  

  

  

  

b.

  

  

  

  

  

  

  

  

  

c.

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

d.

  

  

  

  

  

  

  

  

  

  

  

  

   

  

  

  

  

Fixed Overhead Spending Variance $ - Select your answer -FavorableUnfavorableCorrect 2 of Item 1 Fixed Overhead Volume Variance $ - Select your answer -FavorableUnfavorableCorrect 4 of Item 1

Explanation / Answer

1 Fixed Overhead Spending Variance : Actual Fixed overhead -Budgeted Fixed overhead =294,700-300,000 -5300 (Unfavorable) Fixed Overhead Volume Variance Absorbed Fixed overhead -Budgeted Fixed Overheads =- Absorbed Fixed Overhead : (Actual output X Fixed overhead Absorption Rate per unit of output) =900,000 X Budgeted Fixed Overhead : (Budgeted Output XFixed Overhead Absorption Rate per unit of output) =1,000,000 X 2 Variable Overhead Spending Variance: =Actual Manufacturing Variable Overheads Expenditure)-(Actual hours x Standard Variable Overhead Rate per hour) = $505,300- (190,000x 2.25) 77800 (Favorable) Variable Overhead Efficieency Variance: =(Standard hours x Standard Variable Overhead Rate per hour) -(Actual hours x Standard Variable Overhead Rate per hour ) = (200,000 x 2.25)- (190,000 x2.25) 22500 (Favorable)

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