A summary of Glendale Company's manufacturing variance report for May 2016 follows: Total Standard Costs (9,200 units) Actual Costs (9,200 units) Variances Direct material $45,540 $49,980 $4,440 U Direct labor 213,900 213,000 900 F Variable overhead 44,160 43,840 320 F Fixed overhead 9,660 9,660 - $313,260 $316,480 $3,220 U Standard material cost per unit of product is 0.5 pounds at $9.90 per pound, and standard direct labor cost is 1.5 hours at $15.50 per hour. The total actual materials cost represents 4,900 pounds purchased at $10.20 per pound. Total actual labor cost represents 14,200 hours at $15.00 per hour. According to standards, variable overhead rate is applied at $3.20 per direct labor hour (based on a normal capacity of 15,000 direct labor hours or 10,000 units of product). Assume that all fixed overhead is applied to work in progress inventory. a. Determine the following variances: Do not use negative signs with any of your answers. Next to each variance answer, select either "F" for Favorable or "U" for Unfavorable. Materials Variances Actual cost: Split cost: Standard cost: Materials price Materials efficiency Labor Variances Actual cost: Split cost: Standard cost: Labor rate Labor efficiency Variable Overhead Variances Actual cost: Split cost: Standard cost: Variable overhead spending Variable overhead efficiency b. Prepare general journal entries to record standard costs, actual costs, and related variances for material, labor, and overhead. General Journal Description Debit Credit Materials inventory To record the purches of direct materials Work in process inventory To record the use of direct materials Work in process inventory Labor rate variance To record direct labor costs and related cost variances. Work in process inventory Manufactruing overhead To apply variable overhead to work in progress and record related cost variances To apply fixed overhead to work in progress c. Prepare journal entries to record the transfer of all completed units to Finished Goods Inventory and the subsequent sale of 8,400 units on account at $54 each (assume no beginning finished goods inventory). General Journal Description Debit Credit To record completion ofunits To record sale ofunits To record cost ofunits
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Variances, Entries, and Income Statement
A summary of Glendale Company's manufacturing variance report for May 2016 follows:
| Total Standard Costs (9,200 units) | Actual Costs (9,200 units) | Variances | ||||
|---|---|---|---|---|---|---|
| Direct material | $45,540 | $49,980 | $4,440 | U | ||
| Direct labor | 213,900 | 213,000 | 900 | F | ||
| Variable |
44,160 | 43,840 | 320 | F | ||
| Fixed overhead | 9,660 | 9,660 | - | |||
| $313,260 | $316,480 | $3,220 | U |
Standard material cost per unit of product is 0.5 pounds at $9.90 per pound, and standard direct labor cost is 1.5 hours at $15.50 per hour. The total actual materials cost represents 4,900 pounds purchased at $10.20 per pound. Total actual labor cost represents 14,200 hours at $15.00 per hour. According to standards, variable overhead rate is applied at $3.20 per direct labor hour (based on a normal capacity of 15,000 direct labor hours or 10,000 units of product). Assume that all fixed overhead is applied to work in progress inventory.
a. Determine the following variances:
Do not use negative signs with any of your answers. Next to each variance answer, select either "F" for Favorable or "U" for Unfavorable.
| Materials Variances | ||
|---|---|---|
| Actual cost: | ||
| Split cost: | ||
| Standard cost: | ||
| Materials price | ||
| Materials efficiency |
| Labor Variances | ||
|---|---|---|
| Actual cost: | ||
| Split cost: | ||
| Standard cost: | ||
| Labor rate | ||
| Labor efficiency |
| Variable Overhead Variances | ||
|---|---|---|
| Actual cost: | ||
| Split cost: | ||
| Standard cost: | ||
| Variable overhead spending | ||
| Variable overhead efficiency |
b. Prepare general
| General Journal | |||
|---|---|---|---|
| Description | Debit | Credit | |
| Materials inventory | |||
| To record the purches of direct materials | |||
| Work in process inventory | |||
| To record the use of direct materials | |||
| Work in process inventory | |||
| Labor rate variance | |||
| To record direct labor costs and related cost variances. | |||
| Work in process inventory | |||
| Manufactruing overhead | |||
| To apply variable overhead to work in progress and record related cost variances | |||
| To apply fixed overhead to work in progress |
c. Prepare journal entries to record the transfer of all completed units to Finished Goods Inventory and the subsequent sale of 8,400 units on account at $54 each (assume no beginning finished goods inventory).
| General Journal | |||
|---|---|---|---|
| Description | Debit | Credit | |
| To record completion ofunits | |||
| To record sale ofunits | |||
| To record cost ofunits |
d. Prepare a partial income statement (through gross profit on sales) showing gross profit based on standard costs, the incorporation of variances, and gross profit based on actual costs.
Do not use negative signs with any of your answers below.
| Glendale Company Partial Income Statement For the Month Ended May 31,2016 |
|||||
|---|---|---|---|---|---|
| Sales | |||||
| Cost of goods at standard cost | |||||
| Gross profit at standard cost | |||||
| Net cost variance | |||||
| Material | |||||
| Labor | |||||
| Variable overhead | |||||
| Gross profit at actual cost |
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