Laughlin, Inc., uses a standard costing system. The predetermined overhead rates are calculated using practical capacity. Practical capacity for a year is defined as 1,000,000 units requiring 200,000 standard direct labor hours. Budgeted overhead for the year is $750,000, of which $300,000 is fixed overhead. During the year, 900,000 units were produced using 190,000 direct labor hours. Actual annual overhead costs totaled $800,000, of which $294,700 is fixed overhead.
1. Calculate the fixed overhead spending and volume variances. Explain the meaning of the volume variance to the manager of Laughlin.
2. Calculate the variable overhead spending and efficiency variances. Is the spending variance the same as the direct materials price variance? If not, explain how it differs.
3. Prepare the journal entries that re?ect the following:
a. Assignment of overhead to production
b. Recognition of the incurrence of actual overhead
c. Recognition of overhead variances
d. Closing out overhead variances, assuming they are not material
This question was answered on: Jul 11, 2017
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