Refer to the information for Johnny Lee, Inc., in Exercise 15-45. Assume that in a given month
Question:
Refer to the information for Johnny Lee, Inc., in Exercise 15-45. Assume that in a given month the standard allowed machine hours for output produced were 5,500. Also, assume that the denominator activity level for setting the predetermined overhead rate is 6,550 machine hours per month. Actual fixed overhead costs for the month were as follows: engineering support, $15,500 (salaries); factory insurance, $5,500; property taxes, $12,000; equipment depreciation, $13,800; supervisory salaries, $14,800; set-up labor, $2,200; materials-handling labor, $2,400. The actual variable overhead cost per machine hour worked was equal to the standard cost except for the following two items: electricity, $8.50 per machine hour; manufacturing supplies, $2.10 per machine hour. The company used 5,600 machine hours in December. The company uses a single overhead account, Factory Overhead, and performs a two-way analysis of the total overhead variance each month.
Fixed Overhead Cost per Month: | Budget | Actual | |||
Engineering Support (salaries) | $15,000 | $15,500 | |||
Factory insurance | $5,000 | $5,500 | |||
Property taxes (factory) | $12,000 | $12,000 | |||
Equipment depreciation (factory) | $13,800 | $13,800 | |||
Supervisory salaries (factory) | $14,800 | $14,800 | |||
Set-up labor | $2,400 | $2,200 | |||
Materials-handling labor | $2,500 | $2,400 | |||
Totals | $65,500 | $66,200 | |||
Variable Overhead Costs per MH: | |||||
Electricity | $8.00 | $8.50 | |||
Indirect Material A | $1.00 | $1.00 | |||
Indirect Material B | $4.00 | $4.00 | |||
Indirect labor: Maintenance | $6.00 | $6.00 | |||
Manufacturing supplies | $2.00 | $2.10 | |||
Totals | $21.00 | $21.60 | |||
Denominator activity level (machine hours) | 6,550 | ||||
Standard allowed MH for units produced = | 5,500 | ||||
Actual MH worked during the month = | 5,600 |
Required
1. Calculate the (a) flexible-budget variance, and (b) the production-volume variance for the month.
2. Provide summary journal entries to record actual overhead costs and standard overhead cost applied to production during the month.
3. Provide the journal entry to record the two overhead variances for the month.
4. Assume that the variances calculated above represent net variances for the year. Give the required journal entry to close these variances to the Cost of Goods Sold (CGS) account.
Step by Step Answer:
Cost management a strategic approach
ISBN: 978-0073526942
5th edition
Authors: Edward J. Blocher, David E. Stout, Gary Cokins