Teddy Company uses a standard cost system. In May, $234,000 of variable manufacturing overhead costs were incurred and the flexible-budget amount for the month was $240,000. Which of the following variable manufacturing overhead entries would have been recorded for May?

Question

Quizplus · Accepted Answer

Under a standard cost system, the variable manufacturing overhead is applied to production based on a predetermined rate. The rate is based on the budgeted amount of variable manufacturing overhead for the period and the budgeted level of production for the same period.

In this case, the flexible budget amount for the month was $240,000, which means that the budgeted rate for variable manufacturing overhead was $2 per direct labor hour ($240,000 ÷ 120,000 direct labor hours).

The actual variable manufacturing overhead costs incurred in May were $234,000. To record these costs, the company would debit Variable Manufacturing Overhead Control for $234,000 and credit Accounts Payable or Cash for the same amount.

Therefore, the correct entry would be:

Debit Variable Manufacturing Overhead Control: $234,000

Credit Accounts Payable or Cash: $234,000

This entry is reflected in choice B.

Teddy Company Uses a Standard Cost System