Question

[The following information applies to the questions displayed below.) The Platter Valley factory of Bybee Industries manufactures field boots. The cost of each boot includes direct materials, direct labor, and manufacturing (factory) overhead. The firm traces all direct costs to products, and it assigns overhead cost to products based on direct labor hours. The company budgeted $15,000 variable factory overhead cost 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 for fixed factory overhead cost. Its practical capacity is 2,500 direct labor hours per month (to manufacture 5,000 pairs of boots). The factory used 2,700 direct labor hours in March to manufacture 4,800 pairs of boots. The actual fixed overhead cost incurred for the month was $92,000. The Platter Valley factory of Bybee Industries currently uses a four-variance analysis of the total factory overhead cost variance but is thinking of changing to a three-variance analysis. Required: 1. Compute the total overhead spending variance, the (variable overhead) efficiency variance, and the production volume variance for March and indicate whether each variance is favorable (F) or unfavorable (U). 2. Prepare the appropriate journal entries at the end of March to record each of the following: (a) the total overhead spending variance, (b) the (variable overhead) efficiency variance, and (c) the production volume variance. Assume that all overhead costs are recorded in a single account called "Factory Overhead."

Answer 1

1. total  Variable overhead spending variance=Actual hours(Actual rate - budgeted rate)

=2700( 15600/2700- 15000/2500)

=600 (F)

Variable overhead efficiency variance= (Actual hours - Budgeted hours for actual production) Variable Budgeted rate

   =(2700 - 2500 x 4800/5000)6

= (2700-2400)6

=1800 (U)

Production Volume variance = (budgeted hours- Budgeted hours for actual production)Budgeted rate

=(2500 - 2500 x 4800/5000)36

=3600 (U)

*budgeted rate =90000/2500 = 36

2. a) Factory overhead .....dr 600

To total variable overhead spending variance 600

b) Variable overhead efficiency variance .......dr 1800

To Factory overhead 1800

c) Production Volume variance .....dr 3600

To Factory overhead 3600