The Fielder manufacturing company uses job order costing system. The company uses machine hours to apply overhead cost to jobs. At the beginning of 2020, the company estimated that 7,850 machine hours would be worked and $1,256,000 overhead cost would be incurred during 2020. The following activities took place in the work in process inventory during February: WIP Inventory A/C Debit- February 1 Bal. b/f 51,250 Debit - Direct Materials Used 256,400 Other transactions incurred: - Indirect material issued to production was $38,000 - Total manufacturing labour incurred in February was $345,000, 80% of this amount represented direct labour. - Other manufacturing overhead costs incurred for February amounted to $340,750. - Two jobs were completed with total costs of $324,000 & $240,000 respectively. They were sold on account at a margin of 40% on sales Required: i) Compute Fielder’s predetermined manufacturing overhead rate for 2020 ii) Calculate the manufacturing overhead variance for Fielder and state the journal entries necessary to dispose of the variance. iv) What is balance on the Cost of Goods Sold account after the adjustment
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.
The Fielder manufacturing company uses job order costing system. The company uses
machine hours to apply
estimated that 7,850 machine hours would be worked and $1,256,000 overhead cost would
be incurred during 2020.
The following activities took place in the work in process inventory during February:
WIP Inventory A/C
Debit- February 1 Bal. b/f 51,250
Debit - Direct Materials Used 256,400
Other transactions incurred:
- Indirect material issued to production was $38,000
- Total manufacturing labour incurred in February was $345,000, 80% of this amount
represented direct labour.
- Other
- Two jobs were completed with total costs of $324,000 & $240,000 respectively. They
were sold on account at a margin of 40% on sales
Required:
i) Compute Fielder’s predetermined manufacturing overhead rate for 2020
ii) Calculate the manufacturing overhead variance for Fielder and state the
entries
iv) What is balance on the Cost of Goods Sold account after the adjustment
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