# Question: EuroGuide Inc publishes European Tour Guide Books in New York

EuroGuide, Inc., publishes European Tour Guide Books in New York City. A monthly flexible overhead budget for the firm follows.
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The planned monthly production is 6,400 guide books. The standard direct-labor allowance is .25 hours per book and overhead is budgeted and applied on the basis of direct-labor hours. During February, EuroGuide, Inc., produced 8,000 books and actually used 2,100 direct-labor hours. The actual overhead costs for the month were as follows:

Required:
1. Determine the formula flexible overhead budget for EuroGuide, Inc.
2. Prepare a display similar to Exhibit 11–6, which shows the variable-overhead variances for February. Indicate whether each variance is favorable or unfavorable.
3. Draw a graph similar to Exhibit 11–7, which shows the variable-overhead variances for February.
4. Explain how to interpret each of the variances computed in requirement (2).
5. Prepare a display similar to Exhibit 11–8, which shows the fixed-overhead variances for February.
6. Draw a graph similar to Exhibit 11–9, which depicts the company’s applied and budgeted fixed overhead for February. Show the February volume variance on the graph.
7. Explain the interpretation of the variances computed in requirement (5).
8. Prepare journal entries to record each of the following:
a. Incurrence of February’s actual overhead cost.
b. Application of February’s overhead cost to Work-in-Process Inventory.
c. Close underapplied or overapplied overhead into Cost of Goods Sold.
9. Draw T-accounts for all of the accounts used in the journal entries of requirement (8). Then post the journal entries to theT-accounts.
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