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 $10,045 variable factory overhead cost and 2,050 direct labor hours to manufacture 4,100 pairs of boots in March. The factory used 3,800 direct labor hours in March to manufacture 3,900 pairs of boots and spent $16,900 on variable overhead during the month. For March, the Platter Valley factory of Bybee Industries budgeted $88,150 for fixed factory overhead cost. Its practical capacity is 2,050 direct labor hours per month (to manufacture 4,100 pairs of boots). The factory used 3,800 direct labor hours in March to manufacture 3,900 pairs of boots. The actual fixed overhead cost incurred for the month was $91,250.

Required: 1. Compute the factory overhead flexible-budget variance, the factory overhead spending variance, and the efficiency variance for variable factory overhead for March and state whether each variance is favorable (F) or unfavorable (U).

2. Provide the appropriate journal entry to record the variable overhead spending variance and a second entry to record the variable overhead efficiency variance for March. Assume that the company uses a single account, Factory Overhead, to record overhead costs. Show all work.

Answer 1

SOLUTION:

1)Actual units manufactured-3900 units

Variable overhead:

Actual hours 3800

Budgeted hours=2050*3900/4100=1950hrs

Actual cost=$16900

Budgeted cost=10045*1950/2050=$9555

Variance=Actual cost -budgeted cost=7345(unfavorable)

PARTICULARS	AMOUNT	HOUR	RATE
BUDGETED UNITS(4100)	10045	2050	4.9(10045/2050)
STANDARD UNITS(3900)	9555	1950	4.9(9555/1950)
ACTUAL UNITS(3900)	16900	3800	4.45(16900/3800)

Variable OH spending varianec=(Standard rate-actual rate)*actual hours

=(4.9-4.45)*3800 =$1710(FAVORABLE)

Variable OH efficiency variance=(Standardhours-actual hours)*standard rate

=(1950-3800)*4.9 =$9065(unfavorable)

2)JOURNAL ENTRIES

PARTICULARS	DEBIT($)	CREDIT($)
FACTORY OVERHEAD	1710
TO VARIAVBLE OH SPENDING VARIANCE		1710
VARIABLE OH EFFICIENCY VARIANCE	9065
TO FACTORY OVERHEAD		9065