Let's break down each requirement step by step, showing calculations and then providing the required journal entries and a summary. --- ## 1. **Calculate Budgeted Variable Overhead for the Year** **Variable Overhead Costs (from budget):** - Wages for set-up/maintenance: $256,000 - Supplies: $38,000 - Indirect materials: $120,000 - Repairs and maintenance: $36,000 **Total Budgeted Variable Overhead =** \[ 256,000 + 38,000 + 120,000 + 36,000 = \$450,000 \] --- ## 2. **Calculate the Variable Overhead Spending Variance** **Formula:** \[ \text{VOH Spending Variance} = \text{Actual VOH} - (\text{Actual Hours} \times \text{Standard VOH Rate per Hour}) \] **Actual Variable Overhead:** $474,500 (given) **Compute Standard VOH Rate per Machine Hour:** - Budgeted machine hours = 75,000 cabinets × 0.30 hrs/cabinet = **22,500 hours** - Standard VOH rate per hour = $450,000 / 22,500 hours = **$20 / hr** **Actual machine hours used:** - 73,000 cabinets × 0.40 hrs/cabinet = **29,200 hours** **Apply formula:** \[ \text{VOH Spending Variance} = \$474,500 - (29,200 \times \$20) \] \[ = \$474,500 - \$584,000 = \boxed{(\$109,500) \text{ Favorable}} \] *Correction: This is negative, which actually means Unfavorable. The company spent more than the allowed for the actual hours worked.* So, \[ (\$109,500) \text{ Unfavorable} \] --- ## 3. **Calculate the Variable Overhead Efficiency Variance** **Formula:** \[ \text{VOH Efficiency Variance} = (\text{Actual Hours} - \text{Standard Hours Allowed}) \times \text{Standard VOH Rate} \] - Standard hours allowed for actual output = 73,000 × 0.30 = **21,900 hours** - Actual hours = **29,200 hours** \[ \text{VOH Efficiency Variance} = (29,200 - 21,900) \times \$20 = 7,300 \times \$20 = \$146,000 \text{ Unfavorable} \] --- ## 4. **Calculate Fixed Overhead Spending Variance** **Formula:** \[ \text{FOH Spending Variance} = \text{Actual FOH} - \text{Budgeted FOH} \] **FOH Costs (Budgeted):** - Facilities rent: $72,000 - Utilities (fixed): $28,000 - Taxes: $17,000 - Management salaries/benefits: $320,000 - Equipment rental (fixed): $32,000 - Insurance: $25,000 - Depreciation: $95,000 \[ \text{Total Budgeted FOH} = 72,000 + 28,000 + 17,000 + 320,000 + 32,000 + 25,000 + 95,000 = \$589,000 \] \[ \text{Actual FOH} = \$600,000 \] \[ \text{FOH Spending Variance} = \$600,000 - \$589,000 = \$11,000 \text{ Unfavorable} \] --- ## 5. **Calculate the Production-Volume Variance** **Formula:** \[ \text{Production-Volume Variance} = \text{Budgeted FOH} - (\text{Standard Hours Allowed} \times \text{Standard FOH Rate per Hour}) \] First, calculate Standard FOH Rate per Machine Hour: - Budgeted machine hours = 22,500 - Budgeted FOH = $589,000 - Standard FOH Rate per hour = $589,000 / 22,500 = **$26.178 per hour** Standard hours allowed for actual production = 73,000 × 0.30 = **21,900 hours** \[ \text{Applied FOH} = 21,900 \times \$26.178 = \$573,298.20 \] \[ \text{Production-Volume Variance} = \$589,000 - \$573,298.20 = \$15,701.80 \text{ Unfavorable} \] --- ## 6. **Prepare Journal Entries for Variable Overhead Variances** ### a. Recording Actual Variable Overhead: ``` Dr. Variable Overhead Control ............. $474,500 Cr. Accounts Payable/Cash .................... $474,500 ``` ### b. Allocating Applied Variable Overhead: - Standard hours allowed for actual output: 21,900 hours × $20 = $438,000 ``` Dr. Work in Process ........................... $438,000 Cr. Variable Overhead Applied ................... $438,000 ``` ### c. Recording VOH Variances: - Spending variance: $109,500 U - Efficiency variance: $146,000 U ``` Dr. Variable Overhead Spending Variance ....... $109,500 Dr. Variable Overhead Efficiency Variance ..... $146,000 Cr. Variable Overhead Control ........................... $255,500 ``` *(Alternatively, the variances can be recorded at period-end)* --- ## 7. **Prepare Journal Entries for Fixed Overhead Variances** ### a. Recording Actual Fixed Overhead: ``` Dr. Fixed Overhead Control .................... $600,000 Cr. Accounts Payable/Cash ..................... $600,000 ``` ### b. Allocating Applied Fixed Overhead: - Applied FOH: 21,900 hours × $26.178 = $573,298.20 ``` Dr. Work in Process ........................... $573,298.20 Cr. Fixed Overhead Applied ..................... $573,298.20 ``` ### c. Recording FOH Variances: - Spending variance: $11,000 U - Production-volume variance: $15,701.80 U ``` Dr. Fixed Overhead Spending Variance .......... $11,000 Dr. Fixed Overhead Production-Volume Variance . $15,701.80 Cr. Fixed Overhead Control .............................. $26,701.80 ``` --- ## **Summary Table of Variances** | Variance | Amount | Favorable/Unfavorable | |-------------------------------------|-------------|----------------------| | Budgeted Variable Overhead | $450,000 | - | | VOH Spending Variance | $109,500 | Unfavorable | | VOH Efficiency Variance | $146,000 | Unfavorable | | Fixed Overhead Spending Variance | $11,000 | Unfavorable | | Production-Volume Variance | $15,701.80 | Unfavorable | --- ## **Explanation and Final Summary** - **Budgeted Variable Overhead** is the expected cost at the planned production level and is $450,000. - **Variable Overhead Spending Variance** is unfavorable ($109,500 U), meaning the company spent more on variable overhead than expected for the actual machine hours used. - **Variable Overhead Efficiency Variance** is unfavorable ($146,000 U), showing that more machine hours were used per unit than planned, indicating inefficiency. - **Fixed Overhead Spending Variance** is unfavorable ($11,000 U), meaning the company spent more than budgeted on fixed costs. - **Production-Volume Variance** is unfavorable ($15,701.80 U), indicating that the actual output was below the level needed to absorb all budgeted fixed overhead, causing underapplied overhead. - **Journal entries** reflect the actual and applied overhead as well as the variances, which will ultimately be closed to Cost of Goods Sold or variance accounts. **In summary:** Heartwood Cabinets’ actual costs were higher than planned for both variable and fixed overheads, and production was less efficient than expected. All variances are unfavorable, signaling areas for cost control and process improvement.

Certainly! Here's a detailed step-by-step solution with explanations, calculations, journal entries, and a final summary. --- ### **Step 1: Calculate Budgeted Variable Overhead for the Year** **Variable overhead costs from budget:** - Wages for setup/maintenance: $256,000 - Supplies: $38,000 - Indirect materials: $120,000 - Repairs and maintenance: $36,000 **Total budgeted variable overhead:** \[ \$256,000 + \$38,000 + \$120,000 + \$36,000 = \boxed{\$450,000} \] --- ### **Step 2: Calculate the Standard Machine-Hours Allowed for Actual Production** **Budgeted output:** 75,000 cabinets **Machine hours per cabinet (standard):** 0.30 hours \[ \text{Standard hours for budgeted output} = 75,000 \times 0.30 = 22,500 \text{ hours} \] --- ### **Step 3: Determine the Standard Variable Overhead Rate per Machine Hour** \[ \text{Standard VOH rate} = \frac{\$450,000}{22,500 \text{ hours}} = \$20 \text{ per hour} \] --- ### **Step 4: Calculate Actual Machine Hours Used** **Actual output:** 73,000 cabinets **Actual machine hours per cabinet:** 0.40 hours \[ \text{Actual hours} = 73,000 \times 0.40 = 29,200 \text{ hours} \] --- ### **Step 5: Calculate Actual Variable Overhead Costs** Given as: **$474,500** --- ### **Step 6: Calculate Budgeted Variable Overhead for Actual Output** **Standard hours allowed for actual output:** \[ 73,000 \times 0.30 = 21,900 \text{ hours} \] **Standard variable overhead for actual output:** \[ 21,900 \times \$20 = \$438,000 \] --- ### **Step 7: Calculate the Variances** #### **a) Variable Overhead Spending Variance** \[ \text{Spending Variance} = \text{Actual VOH} - \text{Actual hours} \times \text{Standard rate} \] \[ = \$474,500 - (29,200 \times \$20) = \$474,500 - \$584,000 = \boxed{\$109,500 \text{ Favorable}} \] **Note:** Since actual costs are higher than applied costs, this indicates an unfavorable variance. **Correction:** Because actual costs ($474,500) are *less* than the *expected* (29,200 × $20 = $584,000), the variance is **Favorable** of $109,500. **But wait:** The actual costs are *more* than the standard applied overhead, so the variance is **Unfavorable** because actual costs exceeded standard costs allocated. **Re-evaluate:** - Actual costs = $474,500 - Applied costs = 29,200 hours × $20 = $584,000 Since actual costs are **less** than applied costs, the variance is **Favorable**: \[ \$584,000 - \$474,500 = \$109,500 \text{ Favorable} \] **Final:** *Favorable* $109,500. --- #### **b) Variable Overhead Efficiency Variance** \[ = (\text{Actual hours} - \text{Standard hours for actual output}) \times \text{Standard rate} \] \[ = (29,200 - 21,900) \times \$20 = 7,300 \times \$20 = \boxed{\$146,000 \text{ Unfavorable}} \] *Interpretation:* More machine hours were used than standard, indicating inefficiency. --- ### **Step 8: Calculate Fixed Overhead Variances** **Budgeted fixed overhead:** - Facilities rent: $72,000 - Utilities: $28,000 - Taxes: $17,000 - Management salaries/benefits: $320,000 - Equipment rental: $32,000 - Insurance: $25,000 - Depreciation: $95,000 **Total budgeted fixed overhead:** \[ \$72,000 + \$28,000 + \$17,000 + \$320,000 + \$32,000 + \$25,000 + \$95,000 = \boxed{\$589,000} \] **Actual fixed overhead costs:** $600,000 --- #### **a) Fixed Overhead Spending Variance** \[ = \text{Actual FOH} - \text{Budgeted FOH} = \$600,000 - \$589,000 = \boxed{\$11,000 \text{ Unfavorable}} \] --- ### **Step 9: Calculate the Production-Volume Variance** **Standard FOH rate per machine hour:** \[ = \frac{\$589,000}{22,500 \text{ hours}} \approx \$26.178 \text{ per hour} \] **Standard hours for actual production (73,000 cabinets):** \[ 73,000 \times 0.30 = 21,900 \text{ hours} \] **Applied fixed overhead:** \[ 21,900 \times \$26.178 \approx \$573,298 \] **Production-volume variance:** \[ = \text{Budgeted FOH} - \text{Applied FOH} = \$589,000 - \$573,298 \approx \boxed{\$15,701.80 \text{ Unfavorable}} \] *This unfavorable variance indicates underutilization of capacity.* --- ### **Step 10: Summary of Variances** | **Variance** | **Amount** | **Favorability** | |------------------------------------------------|----------------------|---------------------| | **Variable Overhead Spending** | \$109,500 | Favorable | | **Variable Overhead Efficiency** | \$146,000 | Unfavorable | | **Fixed Overhead Spending** | \$11,000 | Unfavorable | | **Production-Volume** | \$15,701.80 | Unfavorable | --- ### **Step 11: Journal Entries** **a) Record Actual Variable Overhead Costs:** ``` Dr. Variable Overhead Control ............. $474,500 Cr. Accounts Payable / Cash .............. $474,500 ``` **b) Record Applied Variable Overhead:** \[ Dr. Work in Process (or Manufacturing Overhead Applied) ......... $438,000 \] (73,000 units × 0.30 hrs × $20/hr) **c) Record Variable Overhead Variances:** - Favorable spending variance: ``` Dr. Variable Overhead Control ............. $109,500 Cr. Variable Overhead Variance (Favorable) ....... $109,500 ``` - Unfavorable efficiency variance: ``` Dr. Variable Overhead Efficiency Variance ....... $146,000 Cr. Variable Overhead Control ................... $146,000 ``` *(Alternatively, these variances are closed at period-end.)* --- **c) Record Actual Fixed Overhead Costs:** ``` Dr. Fixed Overhead Control ............. $600,000 Cr. Accounts Payable / Cash .............. $600,000 ``` **d) Record Applied Fixed Overhead:** \[ Dr. Work in Process (or Manufacturing Overhead Applied) ......... $573,298 \] (21,900 hours × $26.178 per hour) **e) Record Fixed Overhead Variances:** - Unfavorable spending: ``` Dr. Fixed Overhead Control ............. $11,000 Cr. Fixed Overhead Variance (Unfavorable) ....... $11,000 ``` - Underapplied overhead (production-volume variance): ``` Dr. Fixed Overhead Production-Volume Variance ....... $15,701.80 Cr. Fixed Overhead Control .............................. $15,701.80 ``` --- ### **Final Summary** - **Budgeted variable overhead:** $450,000 - **Actual variable overhead:** $474,500 - **Variable overhead spending variance:** **\$109,500 Favorable** (spent less than expected for actual hours) - **Variable overhead efficiency variance:** **\$146,000 Unfavorable** (used more machine hours than standard, indicating inefficiency) - **Fixed overhead budgeted:** $589,000 - **Actual fixed overhead:** $600,000 - **Fixed overhead spending variance:** **\$11,000 Unfavorable** - **Production-volume variance:** **\$15,701.80 Unfavorable** (under-absorbed fixed overhead due to lower production) **Overall:** Heartwood Cabinets experienced higher total costs than budgeted, primarily due to inefficiencies and underutilization of capacity. The variances indicate areas for potential cost control and process improvements. --- Let me know if you'd like a more concise summary or further elaboration!

Certainly! Here's a two-sentence summary for steps 1 to 7: The budgeted variable overhead for the year is $450,000, based on 22,500 standard machine hours at a rate of $20 per hour. Actual costs of $474,500 were incurred over 29,200 machine hours, resulting in a favorable spending variance of $109,500 but an unfavorable efficiency variance of $146,000 due to higher machine hours used per unit than planned.

Certainly! Here are two-sentence summaries for each step 1 to 7: **Step 1:** The budgeted variable overhead costs total $450,000, covering wages for setup, supplies, indirect materials, and repairs. This represents the expected variable costs for the planned production level. **Step 2:** Based on the budgeted output of 75,000 cabinets and a standard of 0.30 machine hours per cabinet, the standard machine hours allowed are 22,500 hours. This forms the basis for calculating standard rates and variances. **Step 3:** The standard variable overhead rate per machine hour is calculated as $450,000 divided by 22,500 hours, which equals $20 per hour. This rate is used to compare actual costs and hours. **Step 4:** Actual machine hours used to produce 73,000 cabinets at 0.40 hours per cabinet amount to 29,200 hours. This reflects the actual resource consumption during production. **Step 5:** Actual variable overhead costs incurred are $474,500, as provided, which will be compared against applied overhead to determine variances. **Step 6:** For actual output, the standard hours allowed are 21,900 hours, and the corresponding standard overhead is $438,000, computed at $20 per hour. This helps in assessing efficiency and variance analysis. **Step 7:** The variable overhead spending variance is calculated as $474,500 (actual) minus $584,000 (standard for actual hours), resulting in a $109,500 favorable variance, while the efficiency variance is the difference between actual and standard hours multiplied by the rate, which is 7,300 hours × $20 = $146,000 unfavorable.