Cost Management 6th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 12

Four-Variance Analysis of Total Overhead Cost Variance Franklin Glass Works has the capacity to manufacture 200,000 units for the year ended November 30, 2013. The standard cost sheet specifies two direct labor-hours (DLHs) for each unit manufactured. Total factory overhead was budgeted at $900,000 for the year with a fixed overhead rate of $3 per unit. Both fixed and variable overhead are assigned to products on the basis of standard DLHs. The actual data for the year ended November 30, 2013, follow:

Required
1. Determine the following for the year just completed:
a. Total standard hours allowed for the units manufactured.
b. Variable overhead efficiency variance.
c. Variable overhead spending variance.
d. Fixed overhead spending variance.
e. Total fixed overhead cost applied to units manufactured.
f. Production volume variance.
2. Prepare appropriate journal entries for the four-variance analysis. Assume the company uses only two overhead accounts, one for variable overhead, the other for fixed overhead.
3. Provide a concise explanation of each of the four overhead variances you calculated.