Four OH variances; journal entries Kemp Manufacturing set 70,000 direct labor ho
ID: 2779526 • Letter: F
Question
Four OH variances; journal entries Kemp
Manufacturing set 70,000 direct labor hours as the 2013 capacity measure for computing its predetermined variable overhead rate. At that level, budgeted variable overhead costs are $315,000. Kemp will apply budgeted fixed overhead of $140,400 on the basis of 3,900 budgeted machine hours for the year. Both machine hours and fixed overhead costs are expected to be incurred evenly each month. During March 2013, Kemp incurred 5,900 direct labor hours and 300 machine hours. Actual variable and fixed overhead were $26,325 and $11,400, respectively. The standard times allowed for March production were 5,980 direct labor hours and 290 machine hours.
a. Using the four-variance approach, determine the overhead variances for March 2013. Round all interim calculations to the nearest cent.
VOH Spending Variance $
VOH Efficiency Variance $
Total VOH Variance $
FOH Spending Variance $
FOH Volume Variance $
Total FOH Variance $
Explanation / Answer
(1) Computation of VOH spending variance.We have,
VOH spending variance = ( Standard variable overhead rate x Actual labour hours used) - Actual Variable overhead cost
Standard variable overhead rate = Budgeted variable overhead / standard hours = 315,000 / 70,000 = $ 4.50 per hours
Actual labour hours used in March = 5,900 hrs
Actual Variable overhead cost = $ 26,325
putting these values in above formula,We have
VOH spending variances = (4.50 x 5,900) - 26,325 = 26,550 - 26,325 = $ 225 (Favourable)
Hence, the VOH spending variances for the march is $ 225(Favourable)
(2) Computation of VOH efficiency variances.We have,
VOH efficiency variances = (standard direct labour allowed - Actual direct labour hours) xstandard variable overhead rate
VOH efficiency variances = ( 5,980 - 5,900 ) x 4.50 = $ 360 ( Favourable)
Hence, the VOH efficiency variances for the March is $ 360 (Favourable)
(3) Computation of total VOH variance.We have,
Total VOH variances = Total VOH Variance + VOH Efficiency Variance
Total VOH variances = 225 + 360 = $ 585 (Favourable)
(4) Computation of FOH Spending Variance.We have,
FOH Spending variances = Actual Fixed Overheads costs - Budgeted Fixed Overheads costs
FOH spending variances = 11,400 - 300 x ( 140,400 / 3,900 ) = 11,400 - 300 x 36 = $ 600 (Adverse)
(5) Computation of FOH Volume Variance.We have,
FOH Volume Variance = (Actual Activity – Normal Activity) × Fixed Overhead Application Rate
FOH volume variance = (300 - 290) x 36 = $ 360 ( Adverse)
(6) Computation of Total FOH Variance.We have,
Total FOH Variances = FOH Spending Variance + FOH Volume Variance
Total FOH variances = 600 + 360 = $ 960 (Adverse)
Preparation of Journal entry of variable and fixed overhead variances.We have,
S.No Particulars Debit Credit 1 Variable overhead variances $ 585 Variable Overhead Spending Variance $ 225 Variable Overhead Efficiency Variance $ 360 (To record variable overhead variances for the period of March) 2 FOH Spending Variance $ 600 FOH Volume Variance $ 360 Total FOH Variance $ 960 (To record fixed overhead variances for the period of March)Related Questions
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