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Johnny Lee Inc. produces a line of small gasoline-powered engines that can be used in a variety o...


Johnny Lee Inc. produces a line of small gasoline-powered engines that can be used in a variety of residential machines, rang
Johnny Lee Inc. produces a line of small gasoline-powered engines that can be used in a variety of residential machines, ranging from different types of lawnmowers, to snowblowers, to garden tools (such as tillers and weed-whackers). The basic product line consists of three different models, each meant to fill the needs of a different market. Assume you are the cost accountant for this company and that you have been asked by the owner of the company to construct a flexible budget for factory overhead costs, which seem to be growing faster than revenues. Currently, the company uses machine hours (MHs) as the basis for assigning both variable and fixed factory overhead costs to products. in the relevant range of output, you determine that the following factory fixed overhead costs per month should occur engineering support, $15,000; insurance on the manufacturing facility, $5,000: property taxes on the manufacturing facility,$12.000; depreciation on manufacturing equipment, $13,800; and indirect labor costs of supervisory salaries, $14,800, setup labor, $2,400, and materials handling. $2,500. Variable factory overhead costs are budgeted at $21.00 per machine hour, as follows: electricity, $8.00 indirect materials for Material A of $1.00 and for Material B of $4.00; indirect labor-maintenance, $6.00; and production-related supplies, $2.00. Withi at in a given month (December) the standard allowed machine hours for output produced was 5,500. Also, assume that the denominator activity level for setting the predetermined overhead application rate is 6,550 machine hours per month. December were as follows: engineering support, $15,500 (salaries): factory insurance, Actual fixed overhead costs for the month of follows: engineering su $5,500; property taxes, $12,000; equipment depreciation, $13,800; supervisory salaries, $14,800; setup labor, $2,200 handling labor, $2,400. T except for the following two items: electricity. $8.50 per machine hour; and manufacturing supplies, $2.10 per machine hour. All and wage amounts have not yet been paid. The comp setup labor, $2,200; materials he actual variable overhead cost per machine hour worked in December was equal to the standard cost any used 5,600 machine hours in December Overhead, and performs a two-way analysis of the total factory overhead cost The company uses a single overhead account, Factory variance each month. Required: al factory overhead cost variance, (b) total flexible-budget variance, and (c) the production volume variance for the month. State whether each variance was favorable (F) or unfavorable (U) ournal entry to record (separately) each of the following: (a) actual variable overhead costs, (b) actual fixed ion, and (d) standard fixed overhead cost applied to overhead costs, and (c) standard variable overhead cost applied to product production. Note: Accrued payrol and manufacturing supplies are recorded in the Indirect Materials Inventory account 3. Provide a single 4. Assume that the to close these two variances to the Cost of Goods Sold (CGS) account. I costs are recorded in Salaries and Wages Payable, while transactions regarding indirect materials overhead cost variances for the month variances calculated above represent net overhead cost variances for the year. Provide the required journal entry o record the two factory Complete this question by entering your answers in the tabs below Req 1 Req 2 Req 3 and 4 Calculate the (a) total factory overhead cost variance, (b) total flexible-budget variance, and (c) the production volume variance for the month. State whether each variance was favorable (F) or unfavorable (U) Total factory overhead cost variance Total flexible-budget variance
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Answer:

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(a) Flexible budget variance:
Standard overhead application rates:
Budgeted fixed ovehead
Engineering support 15000
Insurance 5000
Property taxes 12000
Depreciation 13800
Supervisory salaries 14800
Setup labor 2400
Materials handling 2500
65500
Variable overhead $21
Flexible budget variance:
Actual overhead cost:
Fixed:
Engineering support 15500
Insurance 5500
Property taxes 12000
Depreciation 13800
Supervisory salaries 14800
Setup labor 2200
Materials handling 2400 66200
Variable
Electricity 8.5
Indirect materials
Material A 1
Material B 4
Maintenance labor 6
Manufacturing supplies 2.1
Total 21.6
Machinehours (actual) 5600
Variable manufacturing overhead (5600*21.6) 120960
Actual overhead cost (A) 187160
Overhead as per flexible budget:
Fixed 65500
Variable overhead rate $21
Standard allowed machine hours 5500
Variable overhead $1,15,500
Flexible overhead cost (B) (65500+115500) 181000
Flexible budget variance (A)-(B) 6160 Unfavorable
     
(b) Fixed overhead production volume variance:   
Denomiator activity level 6500
Standard allowed machine hours 5500
Diff. (a) 1000
Standard fixed overhead rate per hour
(65500/6500) 10.07692308
Rounded off to (b) 10
Fixed overhead production volume variance (a)*(b) 10000 Unfavorable
2 Debit Credit
Factory overhead 66200
Salaries payable-Engineering support 15500
Insurance payable 5500
Property taxes payable 12000
Depreciation 13800
Salaries payable-supervisory labor 14800
Wages payable-Setup labor 2200
Wages payable-materials handling labor 2400
(To record fixed overhead)
Factory overhead 120400
Utilities payable (5600*8.50) 47600
Indirect materials-A (5600*1) 5600
Indirect materials-B (5600*4) 22400
Maintenance labor (5600*6) 33600
Manufacturing supplies (5600*2) 11200
(To record variable overhead)
Work in process 115500
Factory overhead 115500
(To apply standard variable overhead rate)
Work in process (5500*10) 55000
Factory overhead 55000
(To apply standard fixed overhead rate)
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