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Question

There is only one problem this week on manufacturing variance.

Apollo Sports manufacturers fabric tents. The poles are purchased from a vendor, so the only part manufactured is the actual
The company uses a standard cost system based on manufacturing 5,000 tents per month. Overhead is applied on a per-unit b
4,840 tents were produced. Management has a policy that all variances greater than 3% from standard should be investigated
actual costs are listed below:

Direct material
Direct labor
Overhead applied

Standard
18 yards at $3.20 per yard
6.5 hours at $16.00 per hour
$03.00 per tent

Direct material
Direct labor
Actual overhead

Actual
86,550 yards at $3.25 per yard
32,100 hours at $15.80 per hour
$56,750

INSTRUCTIONS:
1. Compute the total, price, and quantity variances for both materials and labor.
State if each variance is favorable or unfavorable.
2. Compute the total, volume, and budget overhead variances. State if favorable
or unfavorable.
3. Prepare journal entries for the application of overhead, the actual overhead,
and to record variances and close the overhead account. Note that on the actual
overhead you will not have individual expense account amount, so just list
"various" for the expense accounts.
4. Always label all of your work.
SOLUTION:
First, compute total standard quantity at actual production of 4,840 tents.
Direct material
Direct labor
Overhead applied
Total materials variance: (actual qty × actual price) − (standard qty × standard price)
– Positive number is unfavorable.
Materials price variance: (actual qty × actual price) − (actual qty × std price)

Unfavorable.

Materials quantity variance: (actual quantity × std price) − (standard qty × std price)
– Negative number is favorable.
– Check that quantity and price variance eq

Total labor variance: (actual hours × actual rate) − (standard hours × standard rate)

Positive number is unfavorable.

Labor rate variance: (actual hours × actual rate) − (actual hours × std rate)

Labor quantity variance: (actual hours × std rate) − (standard hours × std rate)

Unfavorable.

Negative number is favorable.
Check that quantity and rate variance equ

Negative number is over applied (favorab

Total overhead variance: (actual overhead) − (actual quantity × standard rate)

Overhead volume variance: (actual production qty × std rate) − (standard production qty × std rate)
– Negative number is favorable.
Overhead budget variance (total variance − quantity variance)

Positive number is unfavorable.

Journal entries:
Application of overhead

Debit
Work in process
Manufacturing overhead

Recording actual overhead
Manufacturing overhead
Various expense accounts
Recording variance and closing overhead account
Manufacturing overhead
Overhead budget variance
Overhead

Credit

y part manufactured is the actual fabric tent.
Overhead is applied on a per-u

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