Cost Management: A Strategic Emphasis 7th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 22

Journal Entries for Factory Overhead Costs and Standard Cost Variances; Spreadsheet Application
Refer to the information for Johnny Lee, Inc., in Exercise 15-24. Assume that in a given month the
standard allowed machine hours for output produced are 5,500. Also, assume that the denominator activity level for setting the predetermined overhead rate is 6,550 machine hours per month.
Actual fixed overhead costs for the month are as follows: engineering support, $15,500 (salaries); factory insurance, $5,500; property taxes, $12,000; equipment depreciation, $13,800; supervisory salaries, $14,800; setup labor, $2,200; materials-handling labor, $2,400. The actual variable overhead cost per machine hour worked is equal to the standard cost except for the following two items: electricity, $8.50 per machine hour; manufacturing supplies, $2.10 per machine hour. The company used 5,600 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 $16,660U.)
2. Provide summary journal entries to record actual overhead costs and standard overhead cost applied to production during the month.
3. Provide the journal entry to record the two overhead cost variances for the month.
4. Assume that the variances calculated above represent net variances for the year. Provide the required journal entry to close these variances to the Cost of Goods Sold (CGS) account.