Question

3. Different management levels in Bates, Inc., require varying degrees of managerial accounting information. Because of the need to comply with the managers' requests, four different variances for manufacturing overhead are computed each month. The information for the September overhead expenditures is as follows: Budgeted output units Budgeted fixed manufacturing overhead Budgeted variable manufacturing overhead Budgeted direct manufacturing labor hours Fixed manufacturing costs incurred Direct manufacturing labor hours used Variable manufacturing costs incurred Actual units manufactured 3,200 units $20,000 $5 per direct labor hour 2 hours per unit $26,000 7,200 $35,600 3,400 Required: (40 points) a. Computer 1. Variable Overhead Spending Variance 2. Variable Overhead Enriciency Variance* 3. Fixed Overhead Spending Vaciance 4. Fixed Overhead Production-Volume Variance onry b b. Make the journal entries to record the variances for September.

Answer 1

1 Variable Overhead Spending variance - Difference between actual and budgeted Variable OH Expense Actual variable Overhead Budgeted Variable Overhead Unfavourable variable OH 35600 32000 (3200*2*5) 3600 Dr($) Cr($) Journal Entry: Work in Process Inventory Variable OH Spending Variance Variable OH Expense 32000 3600 35600 2 Variable Overhead Efficiency Variance - (Standard Hours * Standard Rate) - (Actual Hours * Standard Rate) [(3200*2)*5) - (7200*5) 32000 -36000 Unfavourable Variable OH Efficiency Variance = 4000 Cr(s) Journal Entry: Work in Process Inventory Variable OH Effieciency Variance Variable OH Expense Dr($) 32000 4000 3600

3 fixed Overhead Spending Variance - Difference between Actual Fixed OH and Standard Fixed OH Actual Fixed Manufacturing Cost Budgeted Fixed Manufacting Cost Fixed OH Spending Variance 26000 20000 6000 Cr(s) Journal Entry: Work in Process Inventory Fixed OH Spending Variance Fixed OH Expense Dr($) 20000 6000 26000 4 Fixed Overhead Production Volume Variance: Fixed overhead volume variance = Budgeted fixed overhead - Fixed overhead applied to work in process $20000 - $21250 # = $1250 # Fixed component of predetermined overhead rate = Budgeted fixed overhead/budgeted hours $20000/6400 Hrs $3.125 per Hour Fixed overhead applied = Fixed component of predetermined overhead rate x Standard hours allowed for actual output $3.125* (Actual output - Standard hours per unit) $3.125 * (3400 * 2) = $21250 Cr(s) Journal Entry: Work in Process Inventory Fixed OH Volume Variance Fixed OH Expense Dr($) 20000 1250 21250