The Taravez 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 3,900 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 $16 per hour. Actual output produced was 4,300 units. Variable manufacturing overhead incurred was $260,000. Fixed manufacturing overhead incurred was $265,000. Actual machine-hours were 30,000.
Requirements
1. |
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. |
Requirement 1. Prepare an analysis of all variable manufacturing overhead and fixed manufacturing overhead variances, using the 4-variance analysis. Begin by calculating the following amounts for the variable overhead.
Actual Input |
||||
Actual Costs |
x |
Flexible |
Allocated |
|
Incurred |
Budgeted Rate |
Budget |
Overhead |
|
Variable OH |
Now complete the table below for the fixed manufacturing overhead.
Same Budgeted |
||||
Lump Sum |
||||
Actual Costs |
Regardless of |
Flexible |
Allocated |
|
Incurred |
Output Level |
Budget |
Overhead |
|
Fixed OH |
Now complete the 4-variance analysis using the amounts you calculated above. (If no variance exists, leave the dollar value blank. Label the variance as favorable (F), unfavorable (U) or never a variance (N).)
4-Variance |
Spending |
Efficiency |
Production-Volume |
|||
Analysis |
Variance |
Variance |
Variance |
|||
Variable OH |
||||||
Fixed OH |
Requirement 2. Prepare journal entries using the 4-variance analysis. Record the actual variable
manufacturing overhead incurred. (Record debits first, then credits. Exclude explanations from any journal entries.)
Budget for fixed manufacturing overhead | $ 312,000 | |||||
3900*5*16 | ||||||
4-Variance | Spending | Efficiency | Production- | |||
Analysis | Variance | Variance | Volume Variance | |||
Variable | 50000 | U | 59500 | U | Never a variance | |
Fixed | 47000 | F | Never a variance | 32000 | F | |
Variable MOH | ||||||
Actual costs incurred(a) | Actual input * budgeted rate(b) | Flexible budget('c) | Allocated overhead(d) | |||
30000*7 | 4300*5*7 | 4300*5*7 | ||||
260000 | 210000 | 150500 | 150500 | |||
Spending variance | 50000 | U | Never a variance(c-d) | |||
(a-b) | ||||||
Efficiency variance | 59500 | U | ||||
(b-c) | ||||||
Fixed MOH | ||||||
Actual costs incurred(a) | Budgeted lump sum(b) | Flexible budget('c) | Allocated overhead(d) | |||
3900*16*5 | 3900*16*5 | 4300*5*16 | ||||
265000 | 312000 | 312000 | 344000 | |||
Spending variance | 47000 | F | ||||
(a-b) | Never a variance(b-c) | |||||
Production volume variance | 32000 | F | ||||
(c-d) | ||||||
Ques 2 | ||||||
Particulars | debit | credit | ||||
Variable Manufacturing Overhead Control | 260000 | |||||
Accounts Payable Control and other accounts | 260000 | |||||
Work-in-Process Control | 150500 | |||||
Variable Manufacturing Overhead Allocated | 150500 | |||||
Variable Manufacturing Overhead Allocated | 150500 | |||||
Variable Manufacturing Overhead Spending Variance | 50000 | |||||
Variable Manufacturing Overhead Efficiency Variance | 59500 | |||||
Variable Manufacturing Overhead Control | 260000 | |||||
Fixed Manufacturing Overhead Control | 265000 | |||||
Wages Payable Control, Accumulated Depreciation control | 265000 | |||||
Work-in-Process Control | 344000 | |||||
Fixed Manufacturing Overhead Allocated | 344000 | |||||
Fixed Manufacturing Overhead Allocated | 344000 | |||||
Fixed Manufacturing Overhead Spending Variance | 47000 | |||||
Fixed Manufacturing Overhead Production-Volume Variance | 32000 | |||||
Fixed Manufacturing Overhead Control | 265000 | |||||
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