There is only one problem this week on manufacturing variance.
Apollo Sports manufacturers fabric tents. The poles are purchased from a vendor, so the only part manufactured is the actual fabric tent. The company uses a standard cost system based on manufacturing 5,000 tents per month. Overhead is applied on a per-unit basis. In May, 4,840 tents were produced. Management has a policy that all variances greater than 3% from standard should be investigated. Standard and actual costs are listed below:
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Standard
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Direct material
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18 yards at $3.25 per yard
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Direct labor
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6.5 hours at $15.00 per hour
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Overhead applied
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$12.00 per tent
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Actual
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Direct material
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86,550 yards at $3.50 per yard
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Direct labor
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32,100 hours at $15.75 per hour
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Actual overhead
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$56,700
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Instructions:
1. Compute the total, price, and quantity variances for both materials and labor. State if each variance is favorable or unfavorable.
2. Compute the total, volume, and budget overhead variances. State if favorable or unfavorable.
3. Prepare journal entries for the application of overhead, the actual overhead, and to record variances and close the overhead account. Note that on the actual overhead, you will not have individual expense account amount, so just list "various" for the expense accounts.
4. Always label all of your work.