Question
The Ramirez Company uses standard costing in its manufacturing plant for auto parts. The standard cost of a particular auto part, based on a denominator
The Ramirez Company uses standard costing in its manufacturing plant for auto parts. The standard cost of a particular auto part, based on a denominator level of 4,200 output units per year, included 5 machine-hours of variable manufacturing overhead at $9 per hour and 5 machine-hours of fixed manufacturing overhead at $17 per hour. Actual output produced was 4,600 units. Variable manufacturing overhead incurred was $260,000. Fixed manufacturing overhead incurred was $375,000. Actual machine-hours were 27,500.
Requirements
1. | Prepare an analysis of all variable manufacturing overhead and fixed manufacturing overhead variances, using the 4-variance analysis. |
2. | Prepare journal entries using the 4-variance analysis. |
3. | Describe how individual fixed manufacturing overhead items are controlled from day to day. |
4. | Discuss possible causes of the fixed manufacturing overhead variances. |
Requirement 1. Prepare an analysis of all variable manufacturing overhead and fixed manufacturing overhead variances, using the 4-variance analysis. Begin by calculating the following amounts for the variable overhead.
|
| Actual Input |
|
|
| Actual Costs | x | Flexible | Allocated |
| Incurred | Budgeted Rate | Budget | Overhead |
Variable OH |
Now complete the table below for the fixed manufacturing overhead.
|
| Same Budgeted |
|
|
Lump Sum | ||||
| Actual Costs | Regardless of | Flexible | Allocated |
| Incurred | Output Level | Budget | Overhead |
Fixed OH |
Now complete the 4-variance analysis using the amounts you calculated above. (If no variance exists, leave the dollar value blank. Label the variance as favorable (F), unfavorable (U) or never a variance (N).)
4-Variance | Spending | Efficiency | Production-Volume | |||
Analysis | Variance | Variance | Variance | |||
Variable OH |
| |||||
Fixed OH |
|
Requirement 2. Prepare journal entries using the 4-variance analysis. Record the actual variable
manufacturing overhead incurred. (Record debits first, then credits. Exclude explanations from any journal entries.)
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