Question

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 $14,160 variable factory overhead cost and 2,400 direct labor hours to manufacture 4,800 pairs of boots in March. The factory used 2,800 direct labor hours in March to manufacture 4,700 pairs of boots and spent $15,900 on variable overhead during the month. For March, the Platter Valley factory of Bybee Industries budgeted $88,800 for fixed factory overhead cost. Its practical capacity is 2,400 direct labor hours per month (to manufacture 4,800 pairs of boots). The factory used 2,800 direct labor hours in March to manufacture 4,700 pairs of boots. The actual fixed overhead cost incurred for the month was $90,900.

1. Compute the fixed overhead spending (budget) variance and the production volume variance for March and indicate whether each variance is favorable (F) or unfavorable (U).

2. Compute the fixed overhead flexible-budget variance for March. Is this variance favorable (F) or unfavorable (U)?

3. Provide the appropriate journal entry to record the fixed overhead spending variance and the appropriate journal entry to record the production volume variance for March. Assume that the company uses a single account, Factory Overhead, to record overhead costs.

Answer 1