Assignment

Johnny Lee, Inc., produces a line of small gasoline-powered engines that can be used in a variety of residential machines, ranging from different types of lawnmowers, to snowblowers, to garden tools (such as tillers and weed-whackers). The basic product line consists of three different models, each meant to fill the needs of a different market. Assume you are the cost accountant for this company and that you have been asked by the owner of the company to construct a flexible budget for manufacturing overhead costs, which seem to be growing faster than revenues. Currently, the company uses machine hours (MH) as the basis for assigning both variable and fixed factory overhead costs to products.

Within the relevant range of output, you determine that the following fixed overhead costs per month should occur: engineering support, $15,500; insurance on the manufacturing facility, $5,500; property taxes on the manufacturing facility, $12,500; depreciation on manufacturing equipment, $14,300; indirect labor costs: supervisory salaries, $15,300; setup labor, $2,900; materials handling, $3,000. Variable overhead costs are budgeted at $21.00 per machine hour, as follows: electricity, $7.00; indirect materials: Material A = $2.00, Material B = $4.00; maintenance labor, $6.00; and manufacturing supplies, $2.00.

Assume that in a given month the standard allowed machine hours for output produced are 6,000. Also, assume that the denominator activity level for setting the predetermined overhead rate is 6,900 machine hours per month.

Actual fixed overhead costs for the month are as follows: engineering support, $17,000 (salaries); factory insurance, $7,000; property taxes, $12,500; equipment depreciation, $14,300; supervisory salaries, $15,300; setup labor, $3,700; materials-handling labor, $3,900. The actual variable overhead cost per machine hour worked is equal to the standard cost except for the following two items: electricity, $7.50 per machine hour; manufacturing supplies, $2.10 per machine hour. The company used 6,100 machine hours in December.

The company uses a single overhead account, Factory Overhead, and performs a two-way analysis of the total overhead cost variance each month.

Required:

1. Calculate the (a) flexible-budget variance, and (b) the fixed overhead production volume variance for the month. (Hint: The total overhead variance for the month is $19,460U.)

2. Provide summary journal entries to record actual overhead costs and standard overhead cost applied to production during the month. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

A. Record the actual variable overhead costs.
B. Record the actual fixed overhead costs.
C. Record the application of standard variable overhead costs to production.
D. Record the application of standard fixed overhead costs to production

3. Provide the journal entry to record the two overhead cost variances for the month and the journal entry to close these variances to the Cost of Goods Sold (CGS) account. Assume that the variances calculated above represent net variances for the year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

A. Record the overhead variances and the closing of factory overhead account.
B. Record the closing of total overhead variance to CGS.