Overhead Application, Overhead Variances, Journal Entries ONLY LAST PART PLEASE!!! 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 $770,000 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 $780,200 and actual variable overhead costs of $435,600. 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 3.85 per direct labor hour Standard variable overhead rate 2.22 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 746900 Variable 430680 What is the total fixed overhead variance? $ What is the total variable overhead variance? $ -4920 3. Break down the total fixed overhead variance into a spending variance and a volume variance. Spending Variance Volume Variance -23100 4. Compute the variable overhead spending and efficiency variances. Spending Variance -480 Efficiency Variance -4440 5. Now assume that Plimpton's 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 -23100 Variable overhead efficiency variance -4440 Spending variance 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. 1. Work in Process 177580 Variable Overhead Control 430680 Fixed Overhead Control 435600 2. Variable Overhead Control Fixed Overhead Control Various Accounts 3. Fixed Overhead Spending Variance Fixed Overhead Volume Variance Variable Overhead Spending Variance Variable Overhead Efficiency Variance Fixed Overhead Control Variable Overhead Control 4. Cost of Goods Sold Fixed Overhead Spending Variance Fixed Overhead Volume Variance Variable Overhead Spending Variance Variable Overhead Efficiency Variance
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Plimpton Company produces countertop ovens. Plimpton uses a
| Fixed overhead | $770,000 |
| 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 $780,200 and actual variable overhead costs of $435,600.
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 | 3.85 | per direct labor hour |
| Standard variable overhead rate | 2.22 | 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 | 746900 |
| Variable | 430680 |
What is the total fixed overhead variance?
$
What is the total variable overhead variance?
$ -4920
3. Break down the total fixed overhead variance into a spending variance and a volume variance.
| Spending Variance |
|
|
| Volume Variance | -23100 |
|
4. Compute the variable overhead spending and efficiency variances.
| Spending Variance | -480 |
|
| Efficiency Variance | -4440 |
|
5. Now assume that Plimpton's cost accounting system reveals only the total actual overhead. In this case, a three-
| Volume variance | -23100 |
|
| Variable overhead efficiency variance | -4440 |
|
| Spending variance |
|
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.
| 1. |
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Work in Process | 177580 | |
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Variable Overhead Control | 430680 | ||
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Fixed Overhead Control | 435600 | ||
| 2. |
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Variable Overhead Control | ||
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Fixed Overhead Control | |||
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Various Accounts | |||
| 3. |
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Fixed Overhead Spending Variance | ||
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Fixed Overhead Volume Variance | |||
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Variable Overhead Spending Variance | |||
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Variable Overhead Efficiency Variance | |||
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Fixed Overhead Control | |||
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Variable Overhead Control | |||
| 4. |
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Cost of Goods Sold | ||
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Fixed Overhead Spending Variance | |||
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Fixed Overhead Volume Variance | |||
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Variable Overhead Spending Variance | |||
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Variable Overhead Efficiency Variance |
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