Paradis Ltd adopts a standard costing system. The standard cost card for their product is as follows: Direct material $14.50 Direct labour (2 hours at $25 per hour) $50.00 Manufacturing overhead (2 hours at $11 per hour) $22.00 Total standard cost $86.50 The annual budgeted manufacturing overhead totals $6,600,000, of which $3,600,000 is variable. The company allocates overhead costs based on machine hours and calculates separate rates for variable and fixed overheads. The normal annual level of machine-hours is 600,000 hours. The planned production for each month is 25,000 units. Paradis Ltd produced 26,000 units this month and used 53,500 machine hours. The actual manufacturing overhead for the month was $320,000 variable and $260,000 fixed. The total manufacturing overhead applied during the month was $572,000. Calculation of variable overhead variance Variable overhead spending 320,000 - (53,500 * $6) $ (1,000.00) Variable Overhead Standard Rate Monthly variable overhead / monthly labour hour 300,000 / 50,000 $ 6.00 Monthly budgeted variable overhead Annual budgeted variable overhead / total months 36,000,000 / 12 $ 3,000,000.00 Variable Overhead Efficiency Variance (53,500 * 6) - (50,000 * 6) 21,000.00 Standard Hours for a Month Annual Budgeted hours / Total months 600,000 / 12 50,000.00 Calculation of Fixed Overhead Variance Fixed Overhead Cost Variance Standard Cost - Actual Cost 250,000 - 260,000 $ (10,000.00) Fixed Overhead Monthly Standard Cost Annual fixed standard cost / total months 3,000,000 /12 $ 250,000.00 Fixed Overhead Production Volume 5* (25,000 - 26,000) $ (5,000.00) Standard Fixed Overhead Rate Monthly standard fixed / production hours 250,000 / 50,000 $ 5.00 Prepare journal entries to record: Actual overhead costs Adding manufacturing overhead to work in process inventory. The closing of variances to cost of goods sold.

Paradis Ltd adopts a standard costing system. The standard cost card for their product is as follows: Direct material $14.50 Direct labour (2 hours at $25 per hour) $50.00 Manufacturing overhead (2 hours at $11 per hour) $22.00 Total standard cost $86.50 The annual budgeted manufacturing overhead totals $6,600,000, of which $3,600,000 is variable. The company allocates overhead costs based on machine hours and calculates separate rates for variable and fixed overheads. The normal annual level of machine-hours is 600,000 hours. The planned production for each month is 25,000 units. Paradis Ltd produced 26,000 units this month and used 53,500 machine hours. The actual manufacturing overhead for the month was $320,000 variable and $260,000 fixed. The total manufacturing overhead applied during the month was $572,000. Calculation of variable overhead variance Variable overhead spending 320,000 - (53,500 * $6) $ (1,000.00) Variable Overhead Standard Rate Monthly variable overhead / monthly labour hour 300,000 / 50,000 $ 6.00 Monthly budgeted variable overhead Annual budgeted variable overhead / total months 36,000,000 / 12 $ 3,000,000.00 Variable Overhead Efficiency Variance (53,500 * 6) - (50,000 * 6) 21,000.00 Standard Hours for a Month Annual Budgeted hours / Total months 600,000 / 12 50,000.00 Calculation of Fixed Overhead Variance Fixed Overhead Cost Variance Standard Cost - Actual Cost 250,000 - 260,000 $ (10,000.00) Fixed Overhead Monthly Standard Cost Annual fixed standard cost / total months 3,000,000 /12 $ 250,000.00 Fixed Overhead Production Volume 5* (25,000 - 26,000) $ (5,000.00) Standard Fixed Overhead Rate Monthly standard fixed / production hours 250,000 / 50,000 $ 5.00 Prepare journal entries to record: Actual overhead costs Adding manufacturing overhead to work in process inventory. The closing of variances to cost of goods sold.

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter10: Standard Costing And Variance Analysis

Section: Chapter Questions

Problem 72P: Moleno Company produces a single product and uses a standard cost system. The normal production...

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Paradis Ltd adopts a standard costing system. The standard cost card for their product is as follows:

Direct material	$14.50
Direct labour (2 hours at $25 per hour)	$50.00
Manufacturing overhead (2 hours at $11 per hour)	$22.00
Total standard cost	$86.50

The annual budgeted manufacturing overhead totals $6,600,000, of which $3,600,000 is variable. The company allocates overhead costs based on machine hours and calculates separate rates for variable and fixed overheads. The normal annual level of machine-hours is 600,000 hours. The planned production for each month is 25,000 units. Paradis Ltd produced 26,000 units this month and used 53,500 machine hours. The actual manufacturing overhead for the month was $320,000 variable and $260,000 fixed. The total manufacturing overhead applied during the month was $572,000.

Calculation of variable overhead variance
Variable overhead spending
320,000 - (53,500 * $6)	$ (1,000.00)

Variable Overhead Standard Rate
Monthly variable overhead / monthly labour hour
300,000 / 50,000	$ 6.00
Monthly budgeted variable overhead
Annual budgeted variable overhead / total months
36,000,000 / 12	$ 3,000,000.00

Variable Overhead Efficiency Variance
(53,500 * 6) - (50,000 * 6)	21,000.00
Standard Hours for a Month
Annual Budgeted hours / Total months
600,000 / 12	50,000.00

Calculation of Fixed Overhead Variance
Fixed Overhead Cost Variance
Standard Cost - Actual Cost
250,000 - 260,000	$ (10,000.00)
Fixed Overhead Monthly Standard Cost
Annual fixed standard cost / total months
3,000,000 /12	$ 250,000.00
Fixed Overhead Production Volume
5* (25,000 - 26,000)	$ (5,000.00)
Standard Fixed Overhead Rate
Monthly standard fixed / production hours
250,000 / 50,000	$ 5.00

Prepare journal entries to record:

Actual overhead costs
Adding manufacturing overhead to work in process inventory.
The closing of variances to cost of goods sold.

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