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 Fixed Overhead Volume Variance 5,300 Favorable Unfavorable 2. Calculate the variable overhead spending and efficiency variances. Variable Overhead Spending Variance 77,800 Unfavorable Variable Overhead Efficiency Variance 22,5o0Unfavorable Feedback Check My Work 1. The formula for computing the fixed overhead variances are as follows (AFOH = Actual fixed overhead and BFOH = Budgeted fixed overhead): Fixed OH spending variance-AFOH-BFOH, and the volume variance = Budgeted fixed OH-Applied fixed OH. 2. Variable overhead spending variance- (Actual variable OH rate (AVOR) - (SVOR) Standard variable OH rate) x AH. Variable overhead efficiency variance-(AH SH) x SVOR. 3. Prepare the journal entries that reflect the following a. Assignment of overhead to production b. Recognition of the incurrence of actual overhead C. Recognition of overhead variances d. 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 "O" Work in Process a. 675,000 Variable Overhead Control 405,000 Fixed Overhead Control 270,000 Variable Overhead Control Fixed Overhead Control Miscellaneous Accounbs 505,300V 294,700 Fixed Overhead Volume Variance Variable Overhead Spending Variance Variable Overhead Efficiency Variance 30,000 77,800V 22,500 . Fixed Overhead Spending Variance Fixed Overhead Control Variable Overhead Control 5,300 24,700 100,300 d. Cost of Goods Sold 87,500 X Fixed Overhead Volume VarianceV 87,500| X Variable Overhead Spending Variance Varlable Overhead Efficlency Varlance 77,800 22,500 Fixed Overhead Spending Variance 5,30 Cost of Goods Sold 5,300 Feedback Check My Work 3. a. Oh is applied to production by debiting Work in Process and crediting variable and fixed OH control accounts. b. The actual OH is accumulated on the debit side of the OH control accounts c. The OH variances are disposed of by closing them to Cost of Goods Sold if they are not material or by prorating them among Work in Process, Finished Goods, and Cost of Goods Sold if they are material d. The OH variances are disposed of by closing them to Cost of Goods Sold if they are not material or by prorating them among Work in Process, Finished Goods, and Cost of Goods Sold if they are material. Feedback Check My Work Partially correct