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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 Summary

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

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 ...

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