Variable Overhead variances: Direct labor variances refer to the difference between the standard direct labor cost and actual direct labor cost incurred. Direct labor cost variances are categorized into following categories: Variable overhead rate variance: The variable overhead rate variance is calculated with the help of following formula: V a r i a b l e o v e r h e a d r a t e v a r i a n c e = ( A c t u a l V a r i a b l e o v e r h e a d r a t e – S t a n d a r d v a r i a b l e o v e r h e a d r a t e ) × A c t u a l h o u r s Variable overhead efficiency variance: The variable overhead efficiency variance is calculated with the help of following formula: V a r i a b l e o v e r h e a d e f f i c i e n c y v a r i a n c e = ( A c t u a l H o u r s – S t a n d a r d h o u r s ) × S t a n d a r d V a r i a b l e o v e r h e a d r a t e Journal Entry : In journal entry company records all the business transactions which are in monetary form. Company records the transaction on debit and credit in journal entry which are always equal. To indicate: The journal entry to record the Variable Overhead cost and related variances.

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Chapter 9, Problem 3.3GAP

To determine

Concept introduction:

Variable Overhead variances:

Direct labor variances refer to the difference between the standard direct labor cost and actual direct labor cost incurred. Direct labor cost variances are categorized into following categories:

Variable overhead rate variance: The variable overhead rate variance is calculated with the help of following formula: Variable overhead rate variance = ( Actual Variable overhead rate – Standard variable overhead rate ) ×Actual hours

Variable overhead efficiency variance: The variable overhead efficiency variance is calculated with the help of following formula:

Variable overhead efficiency variance = (Actual Hours –Standard hours ) ×Standard Variable overhead rate

Journal Entry: In journal entry company records all the business transactions which are in monetary form. Company records the transaction on debit and credit in journal entry which are always equal.

To indicate:

The journal entry to record the Variable Overhead cost and related variances.

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Computing and journalizing standard cost variances McKnight manufactures coffee mugs that it sells to other companies for customizing with their own logos. McKnight prepares flexible budgets and uses a standard cost system to control manufacturing costs. The standard unit cost of a coffee mug is based on static budget volume of 59,800 coffee mugs per month: Direct Materials (0.2 lbs. @ $0.25 per Ib.) $ 0.05 Direct Labor (3 minutes @ $0.11 per minute) 0.33 Manufacturing Overhead: Variable (3 minutes @ $0.06 per minute) $ 0.18 Fixed (3 minutes @ $0.15 per minute) 0.45 0.63 Total Cost Per Coffee Mug $ 1.01 Actual cost and production information for July 2020 follow: а. Actual production and sales were 62,500 coffee mugs. b. Actual direct materials usage was 10,000 Ibs. at an actual cost of $0.17 per Ib. Actual direct labor usage of 198,000 minutes at a cost of $25,740. d. Actual overhead cost was $8,500 variable and $32,100 fixed. e. Selling and administrative costs were $110,000. C.

Assuming the amount is material, the disposition of overhead variance should be allocated pro rata to the following, except: A Raw materials inventory B Cost of goods sold Work in process inventory Finished goods inventory

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