College Memories, Inc. publishes college yearbooks. A monthly flexible overhead budget for the firm follows.

The planned monthly production is 6,400 yearbooks. The standard direct-labor allowance is .25 hour per book. During February, College Memories, Inc. produced 8,000 yearbooks and actually used 2,100 direct-labor hours. Tue actual overhead costs for the month were as follows:
Actual variable overhead ............ $19,530
Actual fixed overhead ............. 37,600
Required:
1. Determine the formula-style flexible overhead budget for College Memories, Inc.
2. Prepare a display similar to Exhibit, which shows College Memories€™ variable overhead variances for February. Indicate whether each variance is favorable or unfavorable.

3. Draw a graph similar to Exhibit, which shows College Memories€™ 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, which shows College Memories€™ fixed-overhead variances for February.

6. Draw a graph similar to Exhibit, which depicts the company€™s applied and budgeted fixed overhead for February. Show the firm€™s 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:
€¢ Incurrence of February€™s actual overhead Cost.
€¢ Application of February€™s overhead cost to Work-in-Process inventory.
€¢ Close under applied or over applied 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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COLLEGE MEMORIES, INC Monthly Flexible Overhead Budget Direct-Labor Hours Budgeted Cost Variable costs: 1,500 1,750 2,000 Indirect material: Glue Tape Miscellaneous supplies $ 750 300 3,000 7,500 S 875 350 3,500 8,750 $ 1,000 400 4,000 10,000 Indirect labor Utilities Electricity Natural gas 1,500 450 $13,500 1,750 525 $15,750 2,000 600 $18,000 Total variable cost Fixed costs: Supervisory labor Depreciation Property taxes and insurance 12,500 3,400 4,100 $20,000 33,500 12,500 3,400 4,100 $20,000 $35,750 12,500 3,400 4,100 $20,000 $38,000 Total fixed cost Total overhead cost Flexible Budget: Variable Overhead (4)T Variable Overhead Applied to Work in Process Actual Variable Overhead Actual Actual Actual (AH) 6,300 Standard Standard Allowed Standard Standard Allowed Standard Process Hours Rate Process Hours Rate (SVR) Process Hours (SH) Rate Process Hours Rate (AH) 6,300 hours AVR $5.50 per hour (SVR) (SH) (SVR) $5.00 per hour $5.00 per 6,000 process $5.00 per prccess hour 6,000 process hours process process process process hour x process $34,650 $31,500 $30,000 30,000 $3,150 Unfavorable $1,500 Unfavorable Variable-overhead elficiency variance $5.50 Variable-overhead spending variance No difference Acualvradieoveaieesrs00 Actual variable-overhead cost $34650 Actual process hours6,300 Colurnin (4) is not used to compute the vaniances.It is included to point out that the flexlble-budget amount for variable overhead, $30,000, is the amount that will be applied to Work-in-Process Inventory tor product-costing purposes. Rate (Actual) $5.50 (Standard) $5.00 Process 6,000 6,300 Standard) (Actual) Actual Fixed Overhead Budgeted Fixed Overhead Fixed Overhead Work in Process Standard Allowed Process Hours Standard Fixed Overhead Rate 6,000 process hours $2.00 per process hour $16,100 15,000 $12,000 $1,100 Unfavorabla $3,000 Unfavorable Fixed-ovarhead budget variance Fixed-overhead volume variance Consistent with our discussion of the fiwed-overhead volurme variance, some managerial accountants would designate a positive variance as unfavorable. Applied fixed overhead ($2.00 per standard allowed process hour) Fixed overhead Budgeted fixed overhead $15,000 Budgeted fixed overhead Volume variance- $3,000 Applied fixed overhead in September $12,000 Process hours 6,000 7,500 Standard Pianned allowed monthly hours, activity, ivenexpressed actual in hours output