Solved: Refer to the information for Johnny Lee Inc in

Exercise

Refer to the information for Johnny Lee, Inc., in Exercise 15-45. Assume that in a given month
the standard allowed machine hours for output produced were 5,500. Also, assume that the
denominator activity level for setting the predetermined overhead rate is 6,550 machine hours
per month. Actual fixed overhead costs for the month were as follows: engineering support,
$15,500 (salaries); factory insurance, $5,500; property taxes, $12,000; equipment depreciation,
$13,800; supervisory salaries, $14,800; set-up labor, $2,200; materials-handling labor, $2,400.
The actual variable overhead cost per machine hour worked was equal to the standard cost
except for the following two items: electricity, $8.50 per machine hour; manufacturing supplies,
$2.10 per machine hour. The company used 5,600 machine hours in December. The company
uses a single overhead account, Factory Overhead, and performs a two-way analysis of the
total overhead variance each month.

Required
1. Calculate the (a) flexible-budget variance, and (b) the production-volume variance for the
month.
2. Provide summary journal entries to record actual overhead costs and standard overhead cost
applied to production during the month.
3. Provide the journal entry to record the two overhead variances for the month.
4. Assume that the variances calculated above represent net variances for the year. Give the
required journal entry to close these variances to the Cost of Goods Sold (CGS) account.

ANSWER
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