Questions 3153 Standard Costing Use the additional following

Questions #31-#53 Standard Costing: Use the additional following informatio: Shepherd Company has established the following standards for the production of its finished units: $ 30.00 144.00 Direct Materials (5 Ibs per unit $6.00 per lb) Direct Labor (9 di hrs per unit @ $16 per dl hr) Variable Overhead (4 machine hrs per unit @ $9 per mach 36.00 Fixed Overhead (4 machine hrs per unit @ $11 per machh 44.00 254.00 Total Standard Cost of one Finished Unit (the fixed overhead rate was based on a budgeted production level of 16,000 units) Additional information will be given in the questions. You will compute the 8 production cost variances and you will be asked for the standard costing journal entries. When you make r journal entries, be sure to include the account name and dollar amount and be sure it is clear you which account is to be debited and credited. I would suggest the following format, for example for the collection of accounts receivable: Debit Cash $1,000 Credit Accounts Receivable $1,000

Solution

1. Factory overhead controllable variance

Actual factory overhead - budgeted allowance based on standard hours

Actual overhead expense = $144 *16000 =2304000

Budgeted allowable based on standard hours = fixed overheads + variable overheads = 44 *16000 +36 * 16000 =704000 +576000 = 1280000

controllable variance = 1024000

2. Factory overhead volume variance:

=Absorbed overheads - budgeted overheads

=(18000 *144) - (16000 * 144) = 2592000 - 2304000 =288000

3.Factory Overhead spending variance

total overheads for 18000 units - total overheads for produce 16000 units

total overheads for 18000 units

=(18000*144) + (18000*36) + (18000*44) =2592000 + 648000 + 792000 =4032000

total overheads for produce 16000 units

=(16000*144) + (16000*36) + (16000*44) = 2304000 + 576000 + 704000 = 3584000

Spending variance = 4032000 - 3584000 = 448000

4.Factory overhead idle capacity variance :

= Budgeted allowance based on actual hours worked - (Actual hours worked × Standard overhead rate)

Budgeted allowance based on actual hours worked= (16000 * 144) = 2304000

Actual hours worked = 9 * 16000 = 144000

Standard overhead rate = $11

idle capacity variance = 2304000 - (144000 * 11) = 2304000 - 1584000 = 720000

5.Factory overhead efficiency variance :

efficiency variance = (Actual hours worked × Standard overhead rate) - Overhead charged to production

(Actual hours worked × Standard overhead rate) =1584000 (from 4.)

Overhead charged to production = 16000 * 11 =176000 =1408000

6.Variable overhead efficiency variance formula:
=(Actual hours worked × Standard variable overhead rate) – (Standard hours allowed × Standard variable overhead rate)

=((18000*4)  × 9)) - ((16000 * 4 )  × 9))

=576000 - 704000 = - 128000 variance is not negative, so value is 128000

7.Variable overhead efficiency variance formula:
=(Actual hours worked × Fixed overhead rate) – (Standard hours allowed × Fixed overhead rate)

= (18000 × 4 × 11) - (16000 * 4  × 11) = 648000 -576000 = 72000

8.Factory overhead yield variance formula:

(Standard hours allowed for expected output × Standard overhead rate) – (Standard hours allowed for actual output × Standard overhead rate)

(18000 * 9 × 16) - (16000 *9 × 16) = 2592000 - 2304000 = 288000

material price overhead = (18000 *30) - (16000 *30) = 540000 - 480000 = 60000

Journal Entries

1.Debit Material Inventry $540000

Credit Accounts Payable $480000

Credit material Price variance $60000

2.Direct Labour Entry

Debit Work in progress Account $2592000

Credit Accounts Payable $2304000

Credit Labour Overhead variance $288000

3.Variable Overhead entry

Debit Work in Progress $ 648000

Credit Accounts Payable $576000

credit Material Variance $72000

4. Fixed overhead entry

Debit Fixed Overheads $792000

Credit Accounts Payable $ 704000

Credit Fixed overhead variance $88000