The Platter Valley factory of Bybee Industries manufactures field boots. The cos
ID: 2529941 • Letter: T
Question
The Platter Valley factory of Bybee Industries manufactures field boots. The cost of each boot includes direct materials, direct labor, and manufacturing overhead. The firm traces all direct costs to products, and it assigns overhead based on direct labor hours. The company budgeted $15,000 variable overhead and 2,500 direct labor hours to manufacture 5,000 pairs of boots in March. The factory used 2,700 direct labor hours in March to manufacture 4,800 pairs of boots and spent $15,600 on variable overhead during the month. For March the Platter Valley factory of Bybee Industries budgeted $90,000 of fixed overhead. Its practical capacity is 2,500 direct labor hours per month (to manufacture 5,000 pairs of boots). The actual fixed overhead incurred for the month was $92,000.
a. Provide appropriate journal entries to record the variable overhead spending and efficiency variances.
b. The Platter Valley factory of Bybee Industries uses a three-variance analysis of the total factory overhead variance.
Required: 1. Compute the total overhead spending variance, the efficiency variance, and the fixed overhead production volume variance.
2.Determine the spending variances (both variable and fixed), the efficiency variance, and the fixed overhead production volume variance.
Explanation / Answer
(a) Preparation of journal entries to record the variable overhead spending and efficiency variances.We have,
(1) Standard variable overhead rate per direct labor hour = BudgetedTotal Variable Factory Overhead / Budgeted Total Direct Labor Hours
Standard variable overhead rate per direct labor hour = 15,000 / 2,500 = $ 6.00
(2) Standard direct-labor hours per unit = Budgeted Total Direct Labor Hours / Budgeted Total Units
Standard direct-labor hours per unit = 2,500 / 5,000 = 0.5 per unit
(3) Actual variable overhead rate per direct labor hour = Actual Total Variable Factory Overhead / Actual Total Direct Labor Hours
Actual variable overhead rate per direct labor hour = 15,600 / 2,700 = $ 5.777 per hrs
(i) Variable overhead spending variances = Actual production units ( Actual price - Standard price)
Variable overhead spending variances = 2,700 ( 5.777 - 6.00) = $ 600 ( Favourable)
(ii) Variable overhead efficiency variances = ( Actual hours - Standard hours ) Standard rate
Variable overhead efficiency variances = ( 2,700 - 2,400) 6.00 = $ 1,800 ( Unfavourable)
Journal entry:
(1) To record favourable variable overhead spending variances.
Dr. Factory Overhead (Variable Factory Overhead) - $ 600
Cr. Variable Overhead Spending Variance - $ 600
(2) To record unfavourable Variable overhead efficiency variances.
Dr. Variable overhead efficiency variances - $ 1,800
Cr. Factory Overhead (Variable Factory Overhead) - $ 1,800
(b)
(a) Standard fixed factory overhead application rate per direct labor hour = Budgeted Fixed Factory Overhead / Total Direct Labor Hours
Standard fixed factory overhead application rate per direct labor hour = 90,000 / 2,500 = $ 36.00
(b) Standard direct-labor hours per unit = Budgeted Total Direct Labor Hours / Budgeted Total Units
Standard direct-labor hours per unit = 2,500 / 5,000 = 0.5 per unit
(c) Actual fixed overhead rate per direct labor hour = Actual Total Fixed Factory Overhead / Actual Total Direct Labor Hours
Actual fixed overhead rate per direct labor hour = 92,000 / 2,700 = $ 34.00 per hrs
(1) Computation of the total overhead spending variance, the efficiency variance, and the fixed overhead production volume variance.We have,
(a) Fixed overhead spending variances = Actual Fixed Cost - Budgeted Fixed Cost
Fixed overhead spending variances = 92,000 - 90,000 = $ 2,000 (U)
(b) Fixed overhead efficiency variances = ( Standard production hrs - Actual production hrs) Standard rate
Fixed overhead efficiency variances = ( 2,500 - 2,400) 36 = $ 3,600 (F)
( c) Fixed overhead production volume variances = 90,000 - 2,400 x 36 = $ 3,600 (U)
(2) Determination of spending variances (both variable and fixed), the efficiency variance, and the fixed overhead production volume variance.We have,
Spending variances = 600 (F) + 2,000 (U) = $ 1,400 (U)
Efficiency variances = 1,800 (U) + 3,600 (F) = $ 1,800 (F)
Production Volume variances = 600 (F) + 3,600 (U) = $ 3,000 (U)
Budgeted variable factory overhead $ 15,000 Budgeted direct labor hours 2,500 Budgeted production in pair of boots 5,000 Actual variable factory overhead $ 15,600 Actual direct labor hours 2,700 Actual production in pair of boots 4,800Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.