   # Laughlin, Inc., uses a standard costing system. The predetermined overhead rates are calculated using practical capacity. Practical capacity for a year is defined as 1,000,000 units requiring 200,000 standard direct labor hours. Budgeted overhead for the year is $750,000, of which$300,000 is fixed overhead. During the year, 900,000 units were produced using 190,000 direct labor hours. Actual annual overhead costs totaled $800,000, of which$294,700 is fixed overhead. Required: 1. Calculate the fixed overhead spending and volume variances. Explain the meaning of the volume variance to the manager of Laughlin. 2. Calculate the variable overhead spending and efficiency variances. Is the spending variance the same as the direct materials price variance? If not, explain how it differs. 3. Prepare the journal entries that reflect the following: a. Assignment of overhead to production b. Recognition of the incurrence of actual overhead c. Recognition of overhead variances d. Closing out overhead variances, assuming they are not material ### Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

#### Solutions

Chapter
Section ### Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
Chapter 9, Problem 22E
Textbook Problem
109 views

## Laughlin, Inc., uses a standard costing system. The predetermined overhead rates are calculated using practical capacity. Practical capacity for a year is defined as 1,000,000 units requiring 200,000 standard direct labor hours. Budgeted overhead for the year is $750,000, of which$300,000 is fixed overhead. During the year, 900,000 units were produced using 190,000 direct labor hours. Actual annual overhead costs totaled $800,000, of which$294,700 is fixed overhead.Required: 1. Calculate the fixed overhead spending and volume variances. Explain the meaning of the volume variance to the manager of Laughlin. 2. Calculate the variable overhead spending and efficiency variances. Is the spending variance the same as the direct materials price variance? If not, explain how it differs. 3. Prepare the journal entries that reflect the following: a. Assignment of overhead to production b. Recognition of the incurrence of actual overhead c. Recognition of overhead variances d. Closing out overhead variances, assuming they are not material

1.

To determine

Calculate the fixed overhead spending and volume variance and explain the term volume variance to the manager of L Incorporation.

### Explanation of Solution

Fixed overhead spending variance: It is the difference between actual fixed overhead and the budgeted fixed overhead.

Favorable variance occurs only when the fixed overhead is less than the budgeted overhead. Unfavorable variance occurs only when the fixed overhead is more than the budgeted overhead.

The following formula is used to calculate fixed overhead spending variance:

Fixed overhead volume variance: It is the difference between budgeted fixed overhead and the applied fixed overhead.

The following formula is used to calculate fixed overhead volume variance:

Calculate the fixed overhead spending and volume variance and explain the term volume variance to the manager of L Incorporation:

Fixed overhead spending variance = (Actual fixed overheadBudgeted fixed overhead) = ($294,700$300,000)=$5,300 F Volume variance: Step 1: Compute the applied fixed overhead. Applied fixed overhead =[ Standard fixed overhead rate× Standard hours]=[$1.50×180,000]=\$270,000

Step 2: Compute the volume variance

2.

To determine

Calculate the variable overhead spending and efficiency variance and explain how the variable overhead spending variance different from direct materials price variance.

3.

To determine

Prepare journal entries to reflect the followings.

### Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

#### The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Find more solutions based on key concepts

Essentials of Economics (MindTap Course List)

Why is it smart to remain cool when making a claim, and how should one go about it?

Essentials of Business Communication (MindTap Course List)

How is the periodic interest expense affected by the amortization of the premium on bonds payable?

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)

ADDITIONAL FUNDS NEEDED Morrissey Technologies Inc.s 2014 financial statements are shown here. Morrissey Techno...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

What is normal costing? How does it differ from actual costing?

Managerial Accounting: The Cornerstone of Business Decision-Making 