Question

Prepare an analysis of all variable manufacturing overhead and fixed manufacturing overhead​ variances, using the​ 4-variance analysis.

2.

Prepare journal entries using the​ 4-variance analysis.

3.

Describe how individual fixed manufacturing overhead items are controlled from day to day.

4.

Discuss possible causes of the fixed manufacturing overhead variances.

The MartinezMartinez Company uses standard costing in its manufacturing plant for auto parts. The standard cost of a particular auto​ part, based on a denominator level of 4,500 output units per​ year, included 5 ​machine-hours of variable manufacturing overhead at $7 per hour and 5 ​machine-hours of fixed manufacturing overhead at $15 per hour. Actual output produced was 4,800 units. Variable manufacturing overhead incurred was $ 240,000. Fixed manufacturing overhead incurred was $ 385,000. Actual​ machine-hours were 29,000.

Answer 1

Variable overhead spending variance = (Actual hours worked "Actual rate) - (Actual hours worked Standard rate) 37120 [Unfavourable] Variable overhead efficiency variance = (Actual hours worked "Standard rate) - (Standard hours allowed *Standard rate) 35000 (Unfavourable] Fixed overhead spending variance = Standard fixed overhead cost - Actual fixed overhead cost -25000 (Unfavourable] Fixed overhead volume variance = (Actual volume overhead rate) - (Standard volume "overhead rate) 22500 [Favourable] JOURNAL ENTRIES REASONS Work in process 5,28,000 Variable overhead control (4800*5*7) 1,68,000 1) Inaccurate planning at the start of the period Fixed overhead control (4800*5*15) 3,60,000 2) Non planning of business expansion carried out during the period, at the time of setting budgets. Variable overhead control 2,40,000 3) Wastage and inefficiencies in the management of fixed overheads. Fixed overhead control 3,85,000 Miscellaneous accounts 6,25,000 How to control Variable overhead spending variance Variable overhead efficiency variance Variable overhead control 37,120 35,000 1) Better planning 2) Allocating the fixed manufacturing overheads to products by deriving a proper base of allocation. 72,120