Blue Gum Ltd uses a standard costing system. The firm estimated that it will operate its manufacturing facilities at 800 000 machine hours for the year. The estimated for total budgeted overhead is $2 000 000.
The standard variable overhead rate is estimated to be $2 per machine hour or $6 per unit. The actual data for the year are presented below:
Actual units produced ……………….. 250 000
Actual machine hours ……………….. 764 000
Actual variable overhead ………… $1 701 000
Actual fixed overhead …………….. $ 392 000
Required:
1. Calculate the following variances. Indicate whether each is favourable or unfavourable
(a) Variable overhead spending variance.
(b) Variable overhead efficiency variance.
(c) Fixed overhead budget variance.
(d) Fixed overhead volume variance.
2. Prepare journal entries to add manufacturing overhead to work in process inventory, and to recorded the variances and the actual overhead cost?
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