Overhead Variances, Four-Variance Analysis, Journal Entries Laughlin, Inc., uses
ID: 2429603 • Letter: O
Question
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. Fixed Overhead Spending Variance $ Fixed Overhead Volume Variance $ 2. Calculate the variable overhead spending and efficiency variances. Variable Overhead Spending Variance $ Variable Overhead Efficiency Variance $ 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.
Explanation / Answer
Solution
The entry (c), you have debited fixed overhead volume variance . Therefore to close the variance account you need to credit the account. By this the debit to cost for goods sold also will change. The entry will be
The Account Title
Debit
Credit
The Cost of goods sold
130300
The Fixed overhead volume variance
30000
The Variable overhead spending variance
77800
The Variable overhead efficiency variance
22500
The Account Title
Debit
Credit
The Cost of goods sold
130300
The Fixed overhead volume variance
30000
The Variable overhead spending variance
77800
The Variable overhead efficiency variance
22500
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