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 $15,000 variable factory overhead cost and 2,500 direct labor hours to manufacture 5,000 pairs of boots in March. The factory used 2,700 direct labor hours in March to manufacture 4,800 pairs of boots and spent $15,600 on variable overhead during the month. For March, the Platter Valley factory of Bybee Industries budgeted $90,000 for fixed factory overhead cost. Its practical capacity is 2,500 direct labor hours per month (to manufacture 5,000 pairs of boots). The factory used 2,700 direct labor hours in March to manufacture 4,800 pairs of boots. The actual fixed overhead cost incurred for the month was $92,000. 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.

Answer 1

1	Actual Variable overhead rate per hour	5.78	(15600/2700)
	Standard Variable overhead rate per hour	6	($15,000/2,500)
	Standard Hours	2400	Hours	(2500/5000)*4800
	Flexible-budget variance	1200	U
	Variable overhead spending variance	600	F	(6 - 5.7777)*2700
	Variable overhead efficiency variance	1800	U	(2400-2700)*6
2
Date	Account and Explanation	Debit	Credit
	Factory Overhead (or, Variable Factory Overhead)	1530
	Variable overhead spending variance		1530
	(To record variance)
	Variable overhead efficiency variance	1800
	Factory Overhead (or, Variable Factory Overhead)		1800