The Hilton's 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 31,400 machine hours would be worked and $5,024,000 overhead cost would be incurred during 2020. The following activities took place in the work in process inventory during February: WIP Inventory A/C November 1 Bal. b/f $51,250 Direct Materials Used 256,400 Other transactions incurred: ▪ Indirect material
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 Hilton's manufacturing company uses job order costing system. The company uses machine
hours to apply overhead
machine hours would be worked and $5,024,000 overhead cost would be incurred during 2020.
The following activities took place in the work in process inventory during February:
WIP Inventory A/C
November 1 Bal. b/f $51,250
Direct Materials Used 256,400
Other transactions incurred:
▪ Indirect material issued to production was $40,360
▪ Total manufacturing labour incurred in November was $368,000, 75% of this amount
represented direct labour.
▪ Other
▪ Two jobs were completed with total costs of $384,000 & $270,000 respectively. They were
sold on account at a margin of 33⅓% on sales.
Required:
i) Compute Hilton's predetermined manufacturing overhead rate for 2020.
ii) State the
a) For direct materials used in November
b) For indirect material issued to production in November
c) For total manufacturing labour incurred in November
d) To assign manufacturing labour to the appropriate accounts
e) For other manufacturing overhead incurred
f) For manufacturing overhead applied to production for November, given that Hilton's
manufacturing company worked 2,860 machine hours.
g) To move the completed jobs into finished goods inventory
h) To sell the two completed jobs on account
iii) Calculate the manufacturing overhead variance for Hilton's and state the journal entries
necessary to dispose of the variance.
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