Overhead Application, Overhead Variances

Tavera Company uses a standard cost system. The direct labour standard indicates that five direct labour hours should be used for every unit produced. Tavera produces one product. The normal production volume is 120,000 units of this product. The budgeted overhead for the coming year is as follows:

Tavera applies overhead on the basis of direct labour hours.

During the year, Tavera produced 118,600 units, worked 592,300 direct labour hours, and incurred actual fixed overhead costs of $2,150,400 and actual variable overhead costs of $1,422,800.
Required:

1. Calculate the standard fixed overhead rate and the standard variable overhead rate. each per direct labour hour. Round your answers to the nearest cent.

2. Compute the applied fixed overhead and the applied variable overhead. What is the total fixed overhead variance? Total variable overhead variance?

3. Conceptual Connection: Break down the total fixed overhead variance into a spending variance and a volume variance.

Discuss the significance of each.
The input in the box below will not be graded, but may be reviewed and considered by your instructor.
4. Conceptual Connection: Compute the variable overhead spending and efficiency variances.

Discuss the significance of each.
The input in the box below will not be graded, but may be reviewed and considered by your instructor.

5. Prepare the journal entries for overhead variances were not discussed in this chapter. Typically, the overhead variance entries happen at the end of the year. Assume that applied fixed (variable) overhead is accumulated on the credit side of the fixed (variable) overhead control account. Actual fixed (variable) overhead costs are accumulated on the debit side of the respective control accounts. At the end of the year, the balance in each control account is the total fixed (variable) variance. Create accounts for each of the four overhead variances and close out the total variances to each of these four variance accounts. These four variance accounts are then usually disposed of by closing them to Cost of Goods Sold.

Prepare the journal entries that close these variances to Cost of Goods Sold. If an amount box does not require an entry, leave it blank.