Mantuach Printing is a highly automated printing company. Mantuach allocates fac
ID: 2520762 • Letter: M
Question
Mantuach Printing is a highly automated printing company. Mantuach allocates factory overhead based on machine hours. During a recent month, 310 machine hours were worked. These machine hours resulted in the production of 30,000 books. The production standards have an objective of 100 books per machine hour.Facts about budgeted and actual factory overhead are as follows: Actual total variable factory overhead for the month was $250,000. Variable factory overhead was estimated and applied at $800 per machine hour. Actual total fixed factory overhead for the month was $120,000. Fixed factory overhead was estimated and applied at $450 per machine hour. Mantuach based the fixed overhead allocation rates on an assumed production level of 28,000 books. (a) Calculate the overhead variances. (b) Prepare journal entries to apply factory overhead to production, and record the related variances. Mantuach Printing is a highly automated printing company. Mantuach allocates factory overhead based on machine hours. During a recent month, 310 machine hours were worked. These machine hours resulted in the production of 30,000 books. The production standards have an objective of 100 books per machine hour.
Facts about budgeted and actual factory overhead are as follows:
Explanation / Answer
Worksheet for Part (1)
Actual hours 310 machine hours worked
Actual cost of variable overhead $250,000
Actual output 30,000 books
Standard hours to achieve output 300 hours (30,000 books / 100 books per hour)
Standard rate per hour $800 per Machine hour
Standard cost of variable overhead $240,000 (300 hours * $800 per hour)
Variable overhead Efficiency Variance:
Efficiency Variance = Standard overhead rate * (Actual Hours – Standard Hours)
Efficiency Variance = $800 * (310 – 300)
Efficiency Variance = $8,000 Unfavorable
Variable Overhead Spending Variance:
Spending variance = Actual hours worked * (Actual overhead rate – Standard overhead rate)
Spending variance = Actual cost of variable overhead – (Actual hours worked * Standard overhead rate)
Spending variance = $250,000 – (310 * $800)
Spending variance = $250,000 - $248,000
Spending variance = $2,000 Favorable
Actual hours310 hours
Actual cost of fixed overhead$120,000
Actual output$30,000 books
Standard hours to achieve output333 hours (30,000 books / 90 per hour)
Standard rate per hour$450 per hour
Budgeted fixed overhead$149,500 ($450 * 333)
Fixed Overhead Expenditure / Spending Variance:
Expenditure / Spending variance = Actual Fixed Overhead – Budgeted Fixed Overhead
Expenditure / Spending variance = $120,000 – 149,500
Expenditure / Spending variance = $29,500 Favorable
Fixed Overhead Volume Variance:
Volume Variance = Absorbed Fixed Overhead – Budgeted Fixed Overhead
Volume Variance = (Actual Output – Budgeted Output) * Fixed overhead rate
Volume Variance = (30,000 – 28,000) * $450
Volume Variance = $900,000 Favorable
Journal Entries:
Variable Overhead Variance journal
Work in process Inventory Dr $244,000
Variable overhead spending Variance Cr $2,000
Variable overhead efficiency variance Dr $8,000
Variance Overhead Expenses Cr $250,000
(To increase work in process for the standard variable overhead, and record the related spending and efficiency variances)
Fixed Overhead Variance Journal:
Work in process inventory Dr $1,049,500
Fixed overhead Spending variance Cr $29,500
Fixed overhead volume variance Cr $900,000
Fixed overhead Expenses Cr $120,000
(To increase work in process for the standard fixed overhead, and record the related spending and volume variances)
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