Question

Li Pong company uses a standard costing system. Last year they incurred $100,000 of Variable Overhead and $294,000 of Fixed Overhead and had the following variances before closing entries.

FOH Budget Variance - $2,000 F

FOH Volume Variance - $7,000 U

VOH Spending Variance - $9,000 F

VOH Efficiency Variance - $1,000 U

How much overhead was applied to inventory over the course of the year?

(Answer in dollars)

Answer 1

Fixed overhead expenditure variance is 2000 favourable

Hence, budgeted fixed overhead is $ 294,000 + $ 2,000 = $ 296,000

Fixed overhead volume variance is $ 7,000 unfavourable

Hence absorbed fixed overhead is $ 296,000 - $ 7000 = $ 291,000

Similarly, Variable overhead spending variance is $ 9,000 favourable

Hence, budgeted Variable overhead is $ 100,000 + $ 9,000 = $ 109,000

Variable overhead efficiency variance is $ 1,000 unfavourable

Hence, standard variable overhead is $ 109,000 - $ 1,000 = $ 108,000

Total Overhead inventorised = $ 291,000 + $ 108,000 = $ 399,000