week_7_homework_problems

Apollo Sports manufacturers fabric tents. The poles are purchased from a vendor, so the only part manufactured is the actual fabric tent.
The company uses a standard cost system based on manufacturing 5,000 tents per month. Overhead is applied on a per-unit basis. In May,
4,840 tents were produced. Management has a policy that all variances greater than 3% from standard should be investigated. Standard and
actual costs are listed below:

	Standard
Direct material	18 yards at $3.20 per yard
Direct labor	6.5 hours at $16.00 per hour
Overhead applied	$12.00 per tent

	Actual
Direct material	86,550 yards at $3.25 per yard
Direct labor	32,100 hours at $15.80 per hour
Actual overhead	$56,750

INSTRUCTIONS:
1. Compute the total, price, and quantity variances for both materials and labor.
State if each variance is favorable or unfavorable.
2. Compute the total, volume, and budget overhead variances. State if favorable
or unfavorable.
3. Prepare journal entries for the application of overhead, the actual overhead,
and to record variances and close the overhead account. Note that on the actual
overhead you will not have individual expense account amount, so just list
"various" for the expense accounts.
4. Always label all of your work.

SOLUTION:

First, compute total standard quantity at actual production of 4,840 tents.
Direct material
Direct labor
Overhead applied

Total materials variance: (actual qty × actual price) − (standard qty × standard price)
	-	-	Positive number is unfavorable.

Materials price variance: (actual qty × actual price) − (actual qty × std price)
		-	Unfavorable.

Materials quantity variance: (actual quantity × std price) − (standard qty × std price)
	-	-	Negative number is favorable.
		-	Check that quantity and price variance equals total variance.

Total labor variance: (actual hours × actual rate) − (standard hours × standard rate)
	-	-	Positive number is unfavorable.

Labor rate variance: (actual hours × actual rate) − (actual hours × std rate)
		-	Unfavorable.

Labor quantity variance: (actual hours × std rate) − (standard hours × std rate)
	-	-	Negative number is favorable.
		-	Check that quantity and rate variance equals total variance.

Total overhead variance: (actual overhead) − (actual quantity × standard rate)
		-	Negative number is over applied (favorable) overhead.

Overhead volume variance: (actual production qty × std rate) − (standard production qty × std rate)
		-	Negative number is favorable.

Overhead budget variance (total variance − quantity variance)
-	-	-	Positive number is unfavorable.

Journal entries:
Application of overhead		Debit	Credit
	Work in process
	Manufacturing overhead		-

Recording actual overhead
	Manufacturing overhead
	Various expense accounts		-

Recording variance and closing overhead account
	Manufacturing overhead
	Overhead budget variance
	Overhead

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