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Chapter 23: Q6TI (page 1296)

Gunter Company reported the following manufacturing overhead variances.

Variable overhead cost variance

$320 F

Variable overhead efficiency variance

458 U

Fixed overhead cost variance

667 U

Fixed overhead volume variance

625 F

24. Record the journal entry to adjust Manufacturing Overhead.

25. Was Manufacturing Overhead overallocated or underallocated?

Short Answer

Expert verified

Answer

  1. Manufacturing overhead adjusted by credit of$180.

  2. Manufacturing overhead are under-allocated.

Step by step solution

01

Definition of Variance Analysis

The analysis used to determine the difference between the actual activity level and the standard activity level is known as variance analysis. This is carried out to control the business process.

02

Journal entry

Date

Accounts and Explanation

Debit $

Credit $


Variable overhead efficiency variance

$458



Fixed overhead cost variance

667



Variable overhead cost variance


$320


Fixed overhead volume variance


$625


Manufacturing overhead


$180


(To record the adjustment of manufacturing overhead)



03

Manufacturing overhead under-allocated or over-allocated

The manufacturing overheads of the business entity are adjusted by crediting which means that it is under-allocated.

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Most popular questions from this chapter

Computing and journalizing standard cost variances

Middleton manufactures coffee mugs that it sells to other companies for customizing with their own logos. Middleton 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. @ \(0.25 per lb.) \) 0.05

Direct Labor (3 minutes @ \(0.14 per minute) 0.42

Manufacturing Overhead:

Variable (3 minutes @ \)0.06 per minute) \( 0.18

Fixed (3 minutes @ \)0.13 per minute) 0.39 0.57

Total Cost per Coffee Mug \( 1.04

Actual cost and production information for July 2018 follows:

a. There were no beginning or ending inventory balances. All expenditures were on account.

b. Actual production and sales were 62,500 coffee mugs.

c. Actual direct materials usage was 11,000 lbs. at an actual cost of \)0.17 per lb.

d. Actual direct labor usage of 197,000 minutes at a cost of \(33,490.

e. Actual overhead cost was \)10,835 variable and \(29,965 fixed.

f. Selling and administrative costs were \)130,000.

Requirements

1. Compute the cost and efficiency variances for direct materials and direct labor.

2. Journalize the purchase and usage of direct materials and the assignment of direct

labor, including the related variances.

3. For manufacturing overhead, compute the variable overhead cost and efficiency variances and the fixed overhead cost and volume variances.

4. Journalize the actual manufacturing overhead and the allocated manufacturing overhead. Journalize the movement of all production from Work in Process Inventory. Journalize the adjusting of the Manufacturing Overhead account.

5. Middleton intentionally hired more highly skilled workers during July. How did this decision affect the cost variances? Overall, was the decision wise?

Cell One Technologies manufactures capacitors for cellular base stations and other communications applications. The company’s July 2018 flexible budget shows output levels of 6,000, 7,500, and 9,500 units. The static budget was based on expected sales of 7,500 units.

CELL ONE TECHNOLOGIES

Flexible Budget

For the Month Ended July 31, 2018

Budget

Amount

per Unit

Units 6,000 7,500 9,500

Sales Revenue \(21 \)126,000 \(157,500 \)199,500

Variable Expenses 10 60,000 75,000 95,000

Contribution Margin 66,000 82,500 104,500

Fixed Expenses 55,000 55,000 55,000

Operating Income \(11,000 \)27,500 \(49,500

The company sold 9,500 units during July, and its actual operating income was as follows:

CELL ONE TECHNOLOGIES

Income Statement

For the Month Ended July 31, 2018

Sales Revenue \)206,500

Variable Expenses 100,100

Variable Expenses 106,400

Fixed Expenses 56,000

Operating Income $504,00

Requirements

1. Prepare a flexible budget performance report for July.

2. What was the effect on Cell One’s operating income of selling 2,000 units more than the static budget level of sales?

3. What is Cell One’s static budget variance for operating income?

4. Explain why the flexible budget performance report provides more useful information to Cell One’s managers than the simple static budget variance. What insights can Cell One’s managers draw from this performance report?

Preparing flexible budgets

Moje, Inc. manufactures travel locks. The budgeted selling price is \(19 per lock, thevariable cost is \)9 per lock, and budgeted fixed costs are $13,000 per month. Prepare aflexible budget for output levels of 4,000 locks and 11,000 locks for the month endedApril 30, 2018.

Question:List the direct labor variances, and briefly describe each.

Question:Use the following information to prepare a standard cost income statement for Mitchell Company for 2018.

Cost of Goods Sold (at standard) \( 366,000

Direct Labor Efficiency Variance \) 19,500 F

Sales Revenue (at standard) 570,000

Variable Overhead Efficiency Variance 3,300 U

Direct Materials Cost Variance 7,200 U

Fixed Overhead Volume Variance 12,500 F

Direct Materials Efficiency Variance 2,700 U

Selling and Administrative Expenses 71,000

Direct Labor Cost Variance 42,000 U

Variable Overhead Cost Variance 1,700 F

Fixed Overhead Cost Variance 2,100 F
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