Question
The Platter Valley factory of Bybee Industries manufactures field boots. The cost of each boot includes direct materials, direct labor, and manufacturing (factory) overhead. The
The Platter Valley factory of Bybee Industries manufactures field boots. The cost of each boot includes direct materials, direct labor, and manufacturing (factory) overhead. The firm traces all direct costs to products, and it assigns overhead cost to products based on direct labor hours.
The company budgeted $11,925 variable factory overhead cost and 2,250 direct labor hours to manufacture 4,500 pairs of boots in March.
The factory used 3,400 direct labor hours in March to manufacture 4,100 pairs of boots and spent $16,500 on variable overhead during the month.
For March, the Platter Valley factory of Bybee Industries budgeted $96,750 for fixed factory overhead cost. Its practical capacity is 2,250 direct labor hours per month (to manufacture 4,500 pairs of boots).
The factory used 3,400 direct labor hours in March to manufacture 4,100 pairs of boots. The actual fixed overhead cost incurred for the month was $99,450.
The Platter Valley factory of Bybee Industries currently uses a four-variance analysis of the total factory overhead cost variance but is thinking of changing to a three-variance analysis.
Required:
1. Compute the total overhead spending variance, the (variable overhead) efficiency variance, and the production volume variance for March and indicate whether each variance is favorable (F) or unfavorable (U).
2. Prepare the appropriate journal entries at the end of March to record each of the following: (a) the total overhead spending variance, (b) the (variable overhead) efficiency variance, and (c) the production volume variance. Assume that all overhead costs are recorded in a single account called "Factory Overhead."
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