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:

1. Calculate the fixed overhead spending and volume variances.

Fixed Overhead Spending Variance	$	- Select your answer -FavorableUnfavorableCorrect 2 of Item 1
Fixed Overhead Volume Variance	$	- Select your answer -FavorableUnfavorableCorrect 4 of Item 1

2. Calculate the variable overhead spending and efficiency variances.

Variable Overhead Spending Variance	$	- Select your answer -FavorableUnfavorableCorrect 6 of Item 1
Variable Overhead Efficiency Variance	$	- Select your answer -FavorableUnfavorableCorrect 8 of Item 1

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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.