Reference no: EM132830169

Problem - Simpson Manufacturing has the following standard cost sheet for one of its products:

		Total
Direct materials	5 pounds at S2 per pound	$10
Direct labor	2 hours at $25 per hour	50
Variable factory overhead	2 hours at $5 per hour	10
Fixed factory overhead	2 hours at $20 per hour	40
Cost per unit		$110

The company uses a standard cost system and applies factory overhead cost based on direct labor hours and determines the factory overhead rate based on a practical capacity of 400 units of the product.

Simpson has the following actual operating results for the year just completed:

Units manufactured	374
Direct materials purchased and used	1,870 pounds	$20,570
Direct labor incurred	820 hours	22,140
Variable factory overhead incurred		5,248
Fixed factory overhead incurred		15,800

Before closing the periodic accounts, the (standard cost) entries in selected accounts follow:

Account	Debit (total)	Credit (total)
Work-in-process inventory	$174,000	$141,640
Finished goods inventory	141,640	118,690
Cost of goods sold	118,690

Required -

1. Determine for the period the following items:

a. Flexible budget for variable factory overhead cost based on output for the period.

b. Total variable overhead cost applied to production during the period.

c. Total budgeted fixed factory overhead cost.

d. Total fixed factory overhead cost applied to production during the period.

2. Compute the following factory overhead cost variances using a four-variance analysis:

a. Total variable overhead cost variance.

b. Variable overhead spending variance.

c. Variable overhead efficiency variance.

d. Total underapplied or overapplied variable overhead.

e. Fixed overhead spending variance.

f. Fixed overhead production volume variance.

g. Total fixed overhead cost variance.

h. Total underapplied or overapplied fixed overhead.

3. Compute the following factory overhead cost variances using three-variance analysis:

a. Overhead spending variance.

b. Overhead efficiency variance.

c. Fixed overhead production volume variance.

4. Compute the total overhead flexible-budget variance and the fixed overhead production volume variance using a two-variance analysis.

5. Using a single overhead account (e.g., Factory Overhead), make proper Journal entries for:

a. Incurrence of factory overhead costs.

b. Application of factory overhead costs to production.

c. Identification of overhead variances assuming that the firm uses the four-variance analysis identified In requirement 2.

d. Close all factory overhead cost items and their variances of the period if:

(1) The film closes all variances to the Cost of Goods Sold account.

(2) The firm prorates variances to the Inventory accounts and the Cost of Goods Sold account.