Question
Hardwood Furniture, Incorporated manufactures all types of office furniture. The company has one giant plant and office complex in California and employs a full- time
Hardwood Furniture, Incorporated manufactures all types of office furniture. The company has one giant plant and office complex in California and employs a full- time cost accounting department to control and analyze production costs. At the end of the year, the cost accounting department showed the following data:
The factory overhead rate is based on a normal capacity of 8,000 hours. Total budgeted factory overhead expenses were $11,560, consisting of variable expenses, $4,960. and fixed expenses, $6,600.
The standard cost card showed:
- Direct materials $5.00 per unit
- Direct labor 4.00 per hour
Compute the variances for (a) direct materials, (b) direct labor, and (c) factory overhead, showing (1) computation of overhead rates and (2) variances using the *three-factor analysis and (3) journal entries for the analysis.
(*Three-factor analysis of factory overhead variances. With this method, the factory overhead variance has three components:
- Price (spending) variance,
- Efficiency variance, and
- Production volume variance.
The sum of the price (spending) variance and the efficiency variance equals the budget variance in the two-factor analysis.
The production volume variance is computed the same way as in the two-factor analysis. The sum of the three components equals the same total variance as resulted from the one- and two-factor analyses of factory overhead variances.)
Actual Data Purchased 10,000 10.000 units @ $4.94 Materials: Requisitioned 7,100 units Standard quantity allowed 7,000 units Actual hours worked 3,760 hours Direct labor: Standard hours allowed 3,180 hours Actual rate paid $ 4.20 per hour Factory overhead (actual): $ 10,994 Actual Data Purchased 10,000 10.000 units @ $4.94 Materials: Requisitioned 7,100 units Standard quantity allowed 7,000 units Actual hours worked 3,760 hours Direct labor: Standard hours allowed 3,180 hours Actual rate paid $ 4.20 per hour Factory overhead (actual): $ 10,994Step by Step Solution
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