Johnny Lee, Inc., produces a line of small gasoline-poweredengines that can be used in a variety of residential machines,ranging from different types of lawnmowers, to snowblowers, togarden tools (such as tillers and weed-whackers). The basic productline consists of three different models, each meant to fill theneeds of a different market. Assume you are the cost accountant forthis company and that you have been asked by the owner of thecompany to construct a flexible budget for manufacturing overheadcosts, which seem to be growing faster than revenues. Currently,the company uses machine hours (MH) as the basis for assigning bothvariable and fixed factory overhead costs to products.
Within the relevant range of output, you determine that thefollowing fixed overhead costs per month should occur: engineeringsupport, $16,900; insurance on the manufacturing facility, $6,900;property taxes on the manufacturing facility, $13,900; depreciationon manufacturing equipment, $15,700; indirect labor costs:supervisory salaries, $16,900; setup labor, $4,300; materialshandling, $4,400. Variable overhead costs are budgeted at $17.00per machine hour, as follows: electricity, $6.00; indirectmaterials: Material A = $2.00, Material B = $3.00; maintenancelabor, $5.00; and manufacturing supplies, $1.00.
Assume that in a given month the standard allowed machine hoursfor output produced are 7,400. Also, assume that the denominatoractivity level for setting the predetermined overhead rate is 7,900machine hours per month.
Actual fixed overhead costs for the month areas follows: engineering support, $21,200 (salaries); factoryinsurance, $11,200; property taxes, $13,900; equipmentdepreciation, $15,700; supervisory salaries, $16,900; setup labor,$7,900; materials-handling labor, $8,100. The actual variableoverhead cost per machine hour worked is equal to the standard costexcept for the following two items: electricity, $6.50 per machinehour; manufacturing supplies, $1.10 per machine hour. The companyused 7,500 machine hours in December.
The company uses a single overhead account,Factory Overhead, and performs a two-way analysis of the totaloverhead cost variance each month.
Required:
1. Calculate the (a) flexible-budget variance, and (b) the fixedoverhead production volume variance for the month. (Hint:The total overhead variance for the month is $27,100U.)
2. Provide summary journal entries to record actual overhead costsand standard overhead cost applied to production during the month.(If no entry is required for a transaction/event, select"No journal entry required" in the first accountfield.)
3.-4. Provide the journal entry to record the two overhead costvariances for the month and the journal entry to close thesevariances to the Cost of Goods Sold (CGS) account. Assume that thevariances calculated above represent net variances for the year.(If no entry is required for a transaction/event, select"No journal entry required" in the first accountfield.)
Johnny Lee, Inc., produces a line of small gasoline-poweredengines that can be used in a variety of residential machines,ranging from different types of lawnmowers, to snowblowers, togarden tools (such as tillers and weed-whackers). The basic productline consists of three different models, each meant to fill theneeds of a different market. Assume you are the cost accountant forthis company and that you have been asked by the owner of thecompany to construct a flexible budget for manufacturing overheadcosts, which seem to be growing faster than revenues. Currently,the company uses machine hours (MH) as the basis for assigning bothvariable and fixed factory overhead costs to products. | |||||||||||
Within the relevant range of output, you determine that thefollowing fixed overhead costs per month should occur: engineeringsupport, $16,900; insurance on the manufacturing facility, $6,900;property taxes on the manufacturing facility, $13,900; depreciationon manufacturing equipment, $15,700; indirect labor costs:supervisory salaries, $16,900; setup labor, $4,300; materialshandling, $4,400. Variable overhead costs are budgeted at $17.00per machine hour, as follows: electricity, $6.00; indirectmaterials: Material A = $2.00, Material B = $3.00; maintenancelabor, $5.00; and manufacturing supplies, $1.00. | |||||||||||
Assume that in a given month the standard allowed machine hoursfor output produced are 7,400. Also, assume that the denominatoractivity level for setting the predetermined overhead rate is 7,900machine hours per month. | |||||||||||
Actual fixed overhead costs for the month areas follows: engineering support, $21,200 (salaries); factoryinsurance, $11,200; property taxes, $13,900; equipmentdepreciation, $15,700; supervisory salaries, $16,900; setup labor,$7,900; materials-handling labor, $8,100. The actual variableoverhead cost per machine hour worked is equal to the standard costexcept for the following two items: electricity, $6.50 per machinehour; manufacturing supplies, $1.10 per machine hour. The companyused 7,500 machine hours in December. | |||||||||||
| The company uses a single overhead account,Factory Overhead, and performs a two-way analysis of the totaloverhead cost variance each month.
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