Example 2

The Bartlesville plant of Iverson Company produces an industrial chemical. At the beginning of the year, the Bartlesville plant had the following standard cost sheet:

Direct materials (10 lbs. @ $1.60) $16.00

Direct labor (0.75 hrs. @ $18.00) 13.50

Fixed overhead (0.75 hrs. @ $4.00) 3.00

Variable overhead (0.75 hrs.@ $3.00) 2.25

Standard cost per unit $34.75

The Bartlesville plant computes its overhead rates using practical volume, which is 72,000 units. The actual results for the year are:

Units produced: 70,000

Materials purchased: 744,000 pounds at $1.50

Materials used: 736,000 pounds

Direct labor: 56,000 hours at $17.90

Fixed overhead: $214,000

Variable overhead: $175,400

Required:

1. Compute the total amount of factory overhead. variance (one way analysis of

variance).

2. Compute the budget and production volume, idle capacity, variances (two way analysis of variance).

3. Compute the overhead spending, efficiency, and production volume variances (three

way analysis of variance).

4. Compute the variable overhead spending, Fixed overhead , efficiency, and production

volume variances (four way analysis of variance).

5. Prepare journal entries for factory overhead variances:

a. One way analysis of variance.

b. Two way analysis of variance.