Exercise 9.22 Overhead Variances, Four-Variance Analysis, Journal Entries

Laughlin, Inc., uses a standard costing system. The predetermined overhead rates are calculated using practical capacity. Practical capacity for a year is defined as 1,000,000 units requiring 200,000 standard direct labor hours. Budgeted overhead for the year is $750,000, of which $300,000 is fixed overhead. During the year, 900,000 units were produced using 190,000 direct labor hours. Actual annual overhead costs totaled $800,000, of which $294,700 is fixed overhead.

Required:

Fixed Overhead Spending Variance 5,300 Favorable

Fixed Overhead Volume Variance 30,000 Unfavorable

Variable Overhead Spending Variance 77,800 Unfavorable

Variable Overhead Efficiency Variance 22,500 Unfavorable

3. Prepare the journal entries that reflect the following:

Assignment of overhead to production

Recognition of the incurrence of actual overhead

Recognition of overhead variances

Closing out overhead variances, assuming they are not material

Note: Close the variances with a debit balance first. For compound entries, if an amount box does not require an entry, leave it blank or enter "0".

a.
b.
c.
d.