Special order lamps are manufactured in division S. Because of the precise natur

Question

Special order lamps are manufactured in division S. Because of the precise nature of the process a

standard cost system has been developed. The following standards are used for the special orders:

Standards

Lamp Kits

$16.000000

per lamp

Direct Labor

     2.400000

per lamp (4 lamps/hr.)

Variable Overhead

     0.250000

per lamp (4 lamps/hr.)

**

Fixed Overhead

10.000000

per lamp

   Total

$28.650000

** Fixed overhead is based on expected production of 4,012 customized lamps each month.

To keep records of the actual cost of a job, a Job Order Cost System has been developed. Entries

are made to the Job Order System at actual cost (overhead is applied based on actual labor hours)

while entries are made to the accounting system at standard. Variance analysis is used to analyze the

differences.

Job Order Costing Section

On January 1, 20x2, Division S began Job 1101 for the Client, THE BIG CHILDREN STORE. The

job called for 4,000 customized lamps. The following set of transactions occurred from

January 5 until the job was completed:

5-Jan

Purchased 4,100 Lamp Kits @ $16.70 per kit.

9-Jan

4,100 sets of Lamp Kits were requisitioned.

17-Jan

Payroll of 610 Direct Labor Hours @ $9.75 per hour.

30-Jan

Payroll of 660 Direct Labor Hours @ $10.00 per hour.

30-Jan

3,988 lamps were completed and shipped. All materials requisitioned were

used or scrapped.

Month End Overhead Information

Actual Variable Overhead

$   1,447.80

Actual Fixed Overhead

$ 40,623.45

Please assist, Im not sure what I'm doing incorrect. My anwers below are incorrect...

Thanks in advance!

Special order lamps are manufactured in division S. Because of the precise nature of the process a

standard cost system has been developed. The following standards are used for the special orders:

Standards

Lamp Kits

$16.000000

per lamp

Direct Labor

     2.400000

per lamp (4 lamps/hr.)

Variable Overhead

     0.250000

per lamp (4 lamps/hr.)

**

Fixed Overhead

10.000000

per lamp

   Total

$28.650000

** Fixed overhead is based on expected production of 4,012 customized lamps each month.

To keep records of the actual cost of a job, a Job Order Cost System has been developed. Entries

are made to the Job Order System at actual cost (overhead is applied based on actual labor hours)

while entries are made to the accounting system at standard. Variance analysis is used to analyze the

differences.

Job Order Costing Section

On January 1, 20x2, Division S began Job 1101 for the Client, THE BIG CHILDREN STORE. The

job called for 4,000 customized lamps. The following set of transactions occurred from

January 5 until the job was completed:

5-Jan

Purchased 4,100 Lamp Kits @ $16.70 per kit.

9-Jan

4,100 sets of Lamp Kits were requisitioned.

17-Jan

Payroll of 610 Direct Labor Hours @ $9.75 per hour.

30-Jan

Payroll of 660 Direct Labor Hours @ $10.00 per hour.

30-Jan

3,988 lamps were completed and shipped. All materials requisitioned were

used or scrapped.

Month End Overhead Information

Actual Variable Overhead

$   1,447.80

Actual Fixed Overhead

$ 40,623.45

Explanation / Answer

1) Variable overhead efficiency variance = (Actual hours-Standard hours for actual production)*Standard VOH rate = (1270-3988/4)*$1 = $    273.00 [U] Notes: VOH standard rate = $0.25*4 = $1 $0.25 is Std. VOH per lamp. As four lamps are made in 1 hour, the Std. VOH rate per DLH = 0.25*4 = $1 Standard hours is 1 hour for 4 lamps. Hence, standard hours allowed for actual production of 3988 lamps = 3988/4 = 997 hours 2) Variable overhead spending variance = Actual overhead-Actual hours*Standard VOH rate = 1447.80 - 1270*1 = $    177.80 [U] 3) Fixed overhead volume variance = Budgeted overhead-Actual production in units * Standard FOH rate = 4012*10 - 3988*10 = $    240.00 [U] 4) FOH spending variance = Actual overhead-Budgeted overhead = 40623.45-4012*10 = $    503.45 [U]

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