Question

Riviera Beach Pink Flamingos has the following standards and flexible-budget data.

Standard variable-overhead rate $6.00 per direct-labor hour

Standard quantity of direct labor 2 hours per unit of output

Budgeted fixed overhead $100,000

Budgeted output 25,000 units

Actual results for April are as follows:

Actual output 20,000 units

Actual variable overhead $320,000

Actual fixed overhead $97,000

Actual direct labor 50,000 hours

Required: 1.Use the variance formulas to compute the following variances .Indicate whether each variance is favorable or unfavorable,where appropriate

(a)Variable-overhead spending variance.

(b)Variable-overhead efficiency variance.

(c)Fixed-overhead budget variance.

(d)Fixed-overhead volume variance.

2.What would be the Debit/Credit account name of the journal entry to:

Close underapplied or overapplied overhead in to Cost of Goods Sold

Answer 1

Working given below:

1)

a	Variable OH spending variance
	=Actual Hours worked during the periodx(Actual variable OH rate- std variable OH rate)
	50000x(6.4-6)	20000	unfavourable
b	Variable OH efficiency variance	0.00	No change
	=(actual labour Hours-budgeted labour hours)xstd rate
	(50000-50000)*6
c	Fixed overhead budget variance	3000	Favourable
	(Total fixed OH budgeted- total Actual OH)
	(100000-97000)
d	Fixed Overhead Volume Variance(20000-25000)x4	20000	unfavourable
	(Actual Activity – Normal Activity) × Fixed Overhead Application Rate

2) If under applied:

Cost of Goods Sold   Dr

Manufacturing Overhead Account Cr

If overapplied:

Manufacturing Overhead Account Dr

Cost of Goods Sold Cr.