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    overhead, variance and investment for Morningstar Corporation

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    Use the following to answer questions 22-23.

    Morningstar Corporation produces decorator wall coverings. Budgeted
    production is 480,000 square feet per month, and the standard direct labor
    requirement to make this amount is 12,000 hours. All overhead is allocated
    based on direct labor hours. Morningstar's management is interested in what
    caused the recent month's favorable overhead variance of $1,750. The
    following information is available:

    Budgeted Amounts Actual Results
    Production in units 480,000 600,000
    Total labor hours 12,000 15,000
    Total variable overhead $18,000 $22,400
    Total fixed overhead $ 9,000 $ 9,600
    Total overhead $27,000 $32,000

    22. Refer to the information above. The journal entry to apply overhead
    to Work In Process Inventory for the month included:
    a. A debit to Work In Process Inventory of $32,000.
    b. A debit to Work In Process Inventory of $27,000.
    c. A debit to Work In Process Inventory of $33,750.
    d. A credit to Work In Process Inventory of $1,750.

    23. Refer to the information above. The overhead volume variance for
    the month in question was:
    a. $500 unfavorable.
    b. $2,250 favorable.
    c. $6,750 favorable.
    d. $2,250 unfavorable.

    24. An expenditure made by a company to purchase a fleet of delivery
    trucks is an example of a capital investment.
    a. True
    b. False

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    Solution Preview

    1. The budgeted overhead is 27,000 for 480,000 units. If the units produced are 600,000, the budgeted overhead would be 33,750 ...

    Solution Summary

    The solution explains how to calculate Work In Process Inventory; Overhead Volume Variance and Capital Investment