Rothchild Company estimates that total factory overhead costs will be $810,000 for the year. Direct labor hours

Rothchild Company estimates that total factory overhead costs will be $810,000 for the year. Direct labor hours are estimated to be 90,000. For Rothchild Company, (a) determine the predetermined factory overhead rate using direct labor hours as the activity base, (b) determine the amount of factory overhead applied to Jobs 40 and 42 in August using the data on direct labor hours from Practice Exercise 19-2B, and (c) prepare the journal entry to apply factory overhead to both jobs in August according to the predetermined overhead rate.

Answer:

a. $9.00 per direct labor hour  = $810,000 ÷ 90,000 direct labor hours 

b. Job 40 

Job 42 

$31,500 = 3,500 hours × $9.00 per hour 

  37,800 = 4,200 hours × $9.00 per hour 

$69,300 

c. Work in Process 69,300  

Prepare a cost of goods sold budget for Magnolia Candle Co., using the information in Practice Exercises 22-3B and 22-4B

Prepare a cost of goods sold budget for Magnolia Candle Co., using the information in Practice Exercises 22-3B and 22-4B. Assume the estimated inventories on January 1, 2014, for finished goods and work in process were $9,800 and $3,600, respectively. Also assume the desired inventories on December 31, 2014, for finished goods and work in process were $12,900 and $3,500, respectively. Factory overhead was budgeted at $109,600.

Answer:

Finished goods inventory, January 1, 2014   $ 9,800 

Work in process inventory, January 1, 2014  $ 3,600  

Direct materials:    

Direct materials inventory, January 1, 2014    

(2,500 × $4.10) $  10,250   

Direct materials purchases (from PE 22–3B) 150,470   

Cost of direct materials available for use $160,720   

Less direct materials inventory,    

December 31, 2014 (2,100 × $4.10) 8,610   

Cost of direct materials placed in    

production $152,110   

Direct labor (from PE 22–4B) 207,760   

Factory overhead 109,600   

Total manufacturing costs  469,470  

Total work in process during period  $473,070  

Less work in process inventory, December 31, 2014  3,500  

Cost of goods manufactured   469,570 

Cost of finished goods available for sale   $479,370 

Less finished goods inventory, December 31, 2014   12,900 

Cost of goods sold   $466,470 

Prepare a cost of goods sold budget for LifeTyme Publishers Inc., using the information in Practice Exercises 22-3A and 22-4A

Prepare a cost of goods sold budget for LifeTyme Publishers Inc., using the information in Practice Exercises 22-3A and 22-4A. Assume the estimated inventories on January 1, 2014, for finished goods and work in process were $28,000 and $17,000, respectively. Also assume the desired inventories on December 31, 2014, for finished goods and work in process were $23,700 and $19,500, respectively. Factory overhead was budgeted at $205,800.

Answer:


Finished goods inventory, January 1, 2014   $ 28,000 
Work in process inventory, January 1, 2014  $ 17,000  
Direct materials:    
Direct materials inventory, January 1, 2014    
(29,100 × $0.80) $ 23,280   
Direct materials purchases (from PE 22–3A) 1,077,680   
Cost of direct materials available for use $1,100,960   
Less direct materials inventory,    
December 31, 2014 (32,900 × $0.80) 26,320   
Cost of direct materials placed in    
production $1,074,640   
Direct labor (from PE 22–4A) 460,560   
Factory overhead 205,800   
Total manufacturing  costs  1,741,000  
Total work in process during period  $1,758,000  
Less work in process inventory, December 31, 2014  19,500  
Cost of goods manufactured   1,738,500 
Cost of finished goods available for sale   $1,766,500 
Less finished goods inventory, December 31, 2014   23,700 
Cost of goods sold   $1,742,800 

Giovanni Company produced 3,500 units of product that required five standard hours per unit

Giovanni Company produced 3,500 units of product that required five standard hours per unit. The standard variable overhead cost per unit is $3.50 per hour. The actual variable factory overhead was $63,400. Determine the variable factory overhead controllable variance.

Answer:

Variable Factory Overhead 

Controllable Variance  =  $63,400 – [$3.50 × (3,500 units × 5 hrs.)] 

Variable Factory Overhead 

Controllable Variance 

Variable Factory Overhead 

Controllable Variance 

 

=  $63,400 – $61,250 

=  $2,150 Unfavorable 

Tannin Products Inc. prepared the following factory overhead cost budget for the Trim Department for July 2014, during which it expected to use 20,000 hours for production

Tannin Products Inc. prepared the following factory overhead cost budget for the Trim Department for July 2014, during which it expected to use 20,000 hours for production:

Variable overhead cost:

Indirect factory labor $46,000

Power and light12,000

Indirect materials   20,000

Total variable overhead cost $ 78,000

Fixed overhead cost:

Supervisory salaries $54,500

Depreciation of plant and equipment 40,000

Insurance and property taxes    35,500

Total fixed overhead cost130,000

Total factory overhead cost$208,000

Tannin has available 25,000 hours of monthly productive capacity in the Trim Department under normal business conditions. During July, the Trim Department actually used 22,000 hours for production. The actual fixed costs were as budgeted. The actual variable overhead for July was as follows:

Actual variable factory overhead cost:

Indirect factory labor        $49,700

Power and light.               13,000

Indirect materials             24,000

Total variable cost           $86,700

Construct a factory overhead cost variance report for the Trim Department for July.

Answer:

TANNIN PRODUCTS INC. 

Factory Overhead Cost Variance Report—Trim Department 

For the Month Ended July 31, 2014 

Productive capacity for the month 25,000  hrs. 

Actual productive capacity used for the month 22,000  hrs. 

    B

udget 

(at actual 

production) 

 

Actual 

    

Indirect factory labor $  50,600 $  49,700 $   (900)  

Power and light 13,200 13,000 (200)  

Indirect materials 22,000 24,000  $  2,000 

Total variable factory     

overhead cost $ 85,800 $ 86,700   

Fixed factory overhead costs:     

Supervisory salaries $  54,500 $  54,500   

Depreciation of plant and     

equipment 40,000 40,000   

Insurance and property taxes 35,500 35,500   

Total fixed factory     

overhead cost $130,000 $130,000   

Total factory overhead cost $215,800 $216,700   

Total controllable variances   $(1,100) $ 2,000 

     

Net controllable variance—unfavorable    $ 900 

Volume variance—unfavorable:     

Idle hours at the standard rate for fixed factory overhead

2

:   

(25,000 hrs. – 22,000 hrs.) × $5.20    15,600 

Total factory overhead cost variance—unfavorable   $16,500 

     

The budgeted variable factory overhead costs are determined by multiplying 

22,000 hours by the variable factory overhead cost rate for each variable cost 

category. These rates are determined by dividing each budgeted amount 

(estimated at the beginning of the month) by the planned (budgeted) volume 

$50,600 = ($46,000 ÷ 20,000 hrs.) × 22,000 hrs. 

$13,200 = ($12,000 ÷ 20,000 hrs.) × 22,000 hrs. 

$22,000 = ($20,000 ÷ 20,000 hrs.) × 22,000 hrs. 

$130,000 

25,000 hrs. 

= $5.20 per hr. 

Alternative Computation of Overhead Variances 

Factory Overhead 

Actual costs 216,700 Applied costs 200,200 

Balance (underapplied)   16,500 [22,000 × ($3.90* + $5.20)] 

Actual 

Factory 

Overhead 

Budgeted Factory 

Overhead for Amount 

Produced 

$216,700 Variable cost (22,000 × $3.90)……………   $ 85,800 $200,200 

Fixed cost…………………………………   130,000 

Total………………………………………… $215,800 

$900 U $15,600 U 

Controllable   Volume 

Variance Variance 

$16,500 U 

Total Factory Overhead 

Cost Variance 

*$78,000 ÷ 20,000 hours budgeted at the beginning of the month