Question

The Tolerances Corporation is a manufacturer of centrifuges. Fixed and variable manufacturing overheads are allocated to each centrifuge using budgeted assembly-hours. Budgeted assembly time is 2 hours per unit. The following table shows the budgeted amounts and actual results related to overhead for June 2017

Answer 1

Ans. 1.

	TOLERANCES CORPORATION
			AMT. IN $
	BUDGETS	ACUTALS	VARIANCE
BUDGETED HOURS	320	282	38	POSITIVE
FIXED OVERHEAD	15360	16770	1410	NEGATIVE
VARIABLE MFG OVERHEAD	13160	8314	4846	POSITIVE
PER UNIT COST BUDGET $ 56

Ans. 2: Journal Entries:

(1) Fixed Overhead Dr 16770

To Bank/Cash 16770

(Being fixed overhead incurred for manufacturing of 235 Assemblies)

(2) Variable Manufacturing Overhead Dr. 8314

To Bank/Cash 8314

(Being Variable Manufacturing Overhead incurred.)

FOR VARIANCE:

Cost of Goods Sold Dr. 1410

To Fixed Overhead 1410

(Being variance on fixed overhead absorbed.)

Variable Overhead Variance Dr.4846

To Cost of Goods Sold 4846

(Being variance on variable overhead adjusted to cost of goods sold.)

Question 3: It may be observed from the data that Planning & Control on Fixed Overhead has shown Negative variance, which seems only due to higher production so these expense were not estimated properly. On the other hand, Planning and Control on Variable Overhead has shown positive results which is also due to more production than that of estimated & in addition the efficient working using less hours for assmebly units, resulting in favorable variances. Hence the whole budget exercise is to revised again for next year.