Overhead Application, Overhead Variances, Journal Entries

Plimpton Company produces countertop ovens. Plimpton uses a standard costing system. The standard costing system relies on direct labor hours to assign overhead costs to production. The direct labor standard indicates that two direct labor hours should be used for every oven produced. The normal production volume is 100,000 units. The budgeted overhead for the coming year is as follows:

Fixed overhead	$760,000
Variable overhead	444,000*
*At normal volume.

Plimpton applies overhead on the basis of direct labor hours.

During the year, Plimpton produced 97,000 units, worked 196,000 direct labor hours, and incurred actual fixed overhead costs of $770,400 and actual variable overhead costs of $435,620.

Required:

1. Calculate the standard fixed overhead rate and the standard variable overhead rate. Round your answers to the nearest cent. Use rounded answers in the subsequent computations.

Standard fixed overhead rate	$fill in the blank 5a2bcffdafa7074_1	per direct labor hour
Standard variable overhead rate	$fill in the blank 5a2bcffdafa7074_2	per direct labor hour

2. Compute the applied fixed overhead and the applied variable overhead. Use the application rates from part (1) in your calculations.

Fixed	$fill in the blank 5a2bcffdafa7074_3
Variable	$fill in the blank 5a2bcffdafa7074_4

What is the total fixed overhead variance? $fill in the blank 5a2bcffdafa7074_5 Unfavorable

What is the total variable overhead variance? $fill in the blank 5a2bcffdafa7074_7 Unfavorable

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

Spending Variance	$fill in the blank 5a2bcffdafa7074_9	Unfavorable
Volume Variance	$fill in the blank 5a2bcffdafa7074_11	Unfavorable

4. Compute the variable overhead spending and efficiency variances.

Spending Variance	$fill in the blank 5a2bcffdafa7074_13	Unfavorable
Efficiency Variance	$fill in the blank 5a2bcffdafa7074_15	Unfavorable

5. Now assume that Plimptons cost accounting system reveals only the total actual overhead. In this case, a three-variance analysis can be performed. Using the relationships between a three- and four-variance analysis, indicate the values for the three overhead variances.

Volume variance	$fill in the blank 5a2bcffdafa7074_17	Unfavorable
Variable overhead efficiency variance	$fill in the blank 5a2bcffdafa7074_19	Unfavorable
Spending variance	$fill in the blank 5a2bcffdafa7074_21	Unfavorable

Feedback

1. Standard Fixed OH rate = fixed OH (production volume x direct labor hours given) Standard variable OH rate = Variable OH production hours

2. Total Fixed OH variance = Actual fixed OH Applied fixed OH Total variable OH variance = Actual variable OH (Variable OH rate x Standard hours for actual production)

3. Fixed OH spending variance = AFOH - BFOH Volume variance = Budgeted fixed OH Applied fixed OH

4. Variable overhead spending variance = (Actual variable OH rate (AVOR) (SVOR) Standard variable OH rate) x AH Variable overhead efficiency variance = (AH SH) x SVOR

5. See Cornerstone 9.8.

6. Prepare journal entries (1) to apply overhead to production, (2) to record the actual overhead costs incurred, (3) to record the variable and fixed overhead variances, and (4) to close the variance accounts at the end of the year. Assume variances are closed to Cost of Goods Sold. If an amount box does not require an entry, leave it blank or enter "0".

1.	Work in Process	fill in the blank 6ca93807f06705b_2	fill in the blank 6ca93807f06705b_3
	Variable Overhead Control	fill in the blank 6ca93807f06705b_5	fill in the blank 6ca93807f06705b_6
	Fixed Overhead Control	fill in the blank 6ca93807f06705b_8	fill in the blank 6ca93807f06705b_9
2.	Variable Overhead Control	fill in the blank 6ca93807f06705b_11	fill in the blank 6ca93807f06705b_12
	Fixed Overhead Control	fill in the blank 6ca93807f06705b_14	fill in the blank 6ca93807f06705b_15
	Various Accounts	fill in the blank 6ca93807f06705b_17	fill in the blank 6ca93807f06705b_18
3.	Fixed Overhead Spending Variance	fill in the blank 6ca93807f06705b_20	fill in the blank 6ca93807f06705b_21
	Fixed Overhead Volume Variance	fill in the blank 6ca93807f06705b_23	fill in the blank 6ca93807f06705b_24
	Variable Overhead Spending Variance	fill in the blank 6ca93807f06705b_26	fill in the blank 6ca93807f06705b_27
	Variable Overhead Efficiency Variance	fill in the blank 6ca93807f06705b_29	fill in the blank 6ca93807f06705b_30
	Fixed Overhead Control	fill in the blank 6ca93807f06705b_32	fill in the blank 6ca93807f06705b_33
	Variable Overhead Control	fill in the blank 6ca93807f06705b_35	fill in the blank 6ca93807f06705b_36
4.	Cost of Goods Sold	fill in the blank 6ca93807f06705b_38	fill in the blank 6ca93807f06705b_39
	Fixed Overhead Spending Variance	fill in the blank 6ca93807f06705b_41	fill in the blank 6ca93807f06705b_42
	Fixed Overhead Volume Variance	fill in the blank 6ca93807f06705b_44	fill in the blank 6ca93807f06705b_45
	Variable Overhead Spending Variance	fill in the blank 6ca93807f06705b_47	fill in the blank 6ca93807f06705b_48
	Variable Overhead Efficiency Variance	fill in the blank 6ca93807f06705b_50	fill in the blank 6ca93807f06705b_51