Problem

College Memories. Inc. publishes college yearbooks. A monthly flexible overhead budget for...

College Memories. Inc. publishes college yearbooks. A monthly flexible overhead budget for the firm follows.

COLLEGE MEMORIES, INC.

Monthly Flexible Overhead Budget

 

Direct-Labor Hours

Budgeted Cost

1,500

1,750

2,000

Variable costs:

  Indirect material:

   Glue

$ 750

$ 875

$ 1,000

   Tape

300

350

400

   Miscellaneous supplies

3,000

3,500

4,000

  Indirect labor

7,500

8,750

10,000

  Utilities:

   Electricity

1,500

1,750

2,000

   Natural gas

450

525

600

Total variable cost

$13,500

$15,750

$18,000

Fixed costs:

  Supervisory labor

12,500

12,500

12,500

  Depreciation

3,400

3,400

3,400

  Property taxes and insurance

4,100

4,100

4,100

Total fixed cost

$20,000

$20,000

$20,000

Total overhead cost

$33,500

$35,750

$38,000

The planned monthly production is 6,400 yearbooks. The standard direct-labor allowance is .25 hour per book. During February. College Memories. Inc. produced 8.000 yearbooks and actually used 2.100 direct-labor hours. The actual overhead costs for the month were as follows:

Actual variable overhead

$19,530

Actual fixed overhead

37,600

Required:

1.Determine the formula-style flexible overhead budget for College Memories, Inc.

2. Prepare a display similar to Exhibit 11–6, which shows College Memories’ variable-overhead variances for February. Indicate whether each variance is favorable or unfavorable.

3. Draw a graph similar to Exhibit 11–7. which shows College Memories’ variable-overhead variances for February.

4. Explain how to interpret each of the variances computed in requirement (2).

5. Prepare a display similar to Exhibit 11–8, which shows College Memories’ fixed-overhead variances for February.

6. Draw a graph similar to Exhibit 11–9, which depicts the company’s applied and budgeted fixed overhead for February. Show the firm’s February volume variance on the graph.

7. Explain the interpretation of the variances computed in requirement (5).

8. Prepare journal entries to record each of the following:

  • Incurrence of February’s actual overhead cost.
  • Application of February’s overhead cost to Work-in-Process Inventory.
  • Close underapplied or overapplied overhead into Cost of Goods Sold.

9. Draw T-accounts for all of the accounts used in the journal entries of requirement (8). Then post the journal entries to the T-accounts.

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