Mosaic Company applies overhead using machine hours and reports the following information. Compute the total variable overhead cost variance and classify it as favorable or unfavorable.
Actual machine hours used 4,700 hours
Standard machine hours (for actual production) 5,000 hours
Actual variable overhead rate per hour $4.15
Standard variable overhead rate per hour $4.00
The total variable overhead cost variance is $495 (Favorable).
A variance is considered favorable when the actual revenues exceed the budgeted revenues, or the actual costs are less than the budgeted costs. Variances are computed by taking the difference between the actual and budgeted outcomes.
Boss Company’s standard cost accounting system recorded this information from its December operations.
Standard direct materials cost
Direct materials quantity variance (unfavorable)
Direct materials price variance (favorable)
Actual direct labor cost
Direct labor efficiency variance (favorable)
Direct labor rate variance (unfavorable)
Actual overhead cost
Volume variance (unfavorable)
Controllable variance (unfavorable)
1.Prepare December 31 journal entries to record the company’s costs and variances for the month. (Do not prepare the journal entry to close the variances.)
2.Identify the variances that would attract the attention of a manager who uses management by exception. Explain what action(s) the manager should consider.
Refer to the information in Problem 21-1B. Tohono Company’s actual income statement for 2017 follows.
Statement of Income from Operations
For Year Ended December 31, 2017
Sales (24,000 units)
Cost of goods sold
Machinery repairs (variable cost)
Utilities (variable cost, $64,000)
Plant manager salaries
Sales salary (annual)
General and administrative expenses
Income from operations
Prepare a flexible budget performance report for 2017.
Analyze and interpret both the (a) sales variance and (b) direct materials cost variance.
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