Moleno Company produces a single product and uses a standard cost system. The normal production volume is 120,000 units; each unit requires five direct labor hours at standard. Overhead is applied on the basis of direct labor hours. The budgeted overhead for the coming year is as follows:

FOH	$2,160,000*
VOH	1,440,000
* At normal volume.

During the year, Moleno produced 118,600 units, worked 592,300 direct labor hours, and incurred actual fixed overhead costs of $2,150,400 and actual variable overhead costs of $1,422,800.

Refer to the list below for the exact wording of a label or an amount description within your income statement.

Amount Descriptions
Depreciation
Direct labor
Other
Flexible budget variance
Supervision
Utilities
Inspecting products
Maintenance
Supplies
Rent
Total conversion cost

1. Calculate the standard fixed overhead rate and the standard variable overhead rate.

Standard Fixed Overhead Rate	per DLH
Standard Variable Overhead Rate	per DLH

2. Compute the applied fixed overhead and the applied variable overhead. What is the total fixed overhead variance? Total variable overhead variance?

Fixed overhead
Variable overhead
Total FOH Variance
Total VOH Variance

3. CONCEPTUAL CONNECTION Break down the total fixed overhead variance into a spending variance and a volume variance.

Fixed overhead analysis
Spending variance
Volume variance

Check the significance of Spending variance and Volume variance. Check all that apply.

The volume variance is a signal of the loss or gain that occurred because of producing at a level different from the expected level.

The volume variance is the incorrect prediction of volume.

Each items variance should be analyzed to see if these costs can be reduced.

The volume variance is the correct prediction of volume.

Each items variance should be analyzed to see if these costs can be increased.

The spending variance is the difference between planned and actual costs.

4. CONCEPTUAL CONNECTION Compute the variable overhead spending and efficiency variances.

Variable overhead analysis
Spending variance
Volume variance

Check the significance of Spending variance and Volume variance. Check all that apply.

The variable overhead spending variance is the difference between the budgeted costs for the actual hours used and the actual variable overhead costs.

The variable overhead efficiency variance is not the savings or extra cost attributable to the efficiency of labor usage.

The variable overhead spending variance is the difference between the actual variable overhead costs and the budgeted costs for the actual hours used.

The variable overhead efficiency variance is the savings or extra cost attributable to the efficiency of labor usage.

Journal entries for overhead variances were not discussed in this chapter. Typically, the overhead variance entries happen at the end of the year. Assume that applied fixed (variable) overhead is accumulated on the credit side of the fixed (variable) overhead control account. Actual fixed (variable) overhead costs are accumulated on the debit side of the respective control accounts. At the end of the year, the balance in each control account is the total fixed (variable) variance. Create accounts for each of the four overhead variances and close out the total variances to each of these four variance accounts. These four variance accounts are then usually closed to Cost of Goods Sold. Form a group with two to four other students, and prepare the journal entries that isolate the four variances. Finally, prepare the journal entries that close these variances to Cost of Goods Sold.

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GENERAL JOURNAL

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