Answer:
Kemp Manufacturing
a. Four-variance approach to determine overhead variances for March 2013:
i. Variable overhead spending variance
= (Actual hours worked × Actual variable overhead rate) – (Actual hours worked × Standard variable overhead rate)
= $225 F ($26,325 - $26,550)
ii. Variable overhead efficiency variance
= (standard hours allowed for production – actual hours taken) × standard overhead absorption rate per hour
= $360 F (5,980 - 5,900) * $4.5
iii. Fixed overhead spending variance = actual fixed overhead cost - budgeted fixed overhead cost
= $600 U ($11,400 - $10,800)
iv. Fixed overhead production volume variance = budgeted fixed overhead - applied fixed overhead costs
= $360 U ($10,440 - $10,800)
b. Journal Entries:
Manufacturing Overheads:
Debit Manufacturing Overhead $26,325
Debit Overapplied Variable Overhead 225
Credit Manufacturing Overhead Applied $26,550
To record variable overhead costs.
Debit Manufacturing Overhead $11,400
Credit Manufacturing Overhead Applied $10,800
Credit Underapplied Fixed Overhead $600
To record fixed overhead costs.
Explanation:
a) Data and Calculations:
Annual Capacity:
Direct labor hours = 70,000
Budgeted variable overhead costs = $315,000
Standard variable overhead rate = $4.50 ($315,000/70,000)
Fixed overhead = $140,400
Budgeted machine hours for the year = 3,900
Standard fixed overhead rate = $36 ($140,400/3,900)
March 2013:
Actual direct labor hours = 5,900
Machine hours = 300
Actual variable overhead = $26,325
Actual variable overhead rate per DLH = $4.462 ($26,325/5,900)
Actual fixed overhead = $11,400
Actual fixed overhead rate = $38 ($11,400/300)
Standard machine hours = 290
Standard direct labor hours = 5,980
