Direct Materials, Direct Labor, and Overhead Variances, Journal Entries Algers Company produces dry fertilizer. At the beginning of the year, Algers had the following standard cost sheet: Direct materials (5 lbs. @ $2.60) $13.00 Direct labor (0.75 hr. @ $18.00) 13.50 Fixed overhead (0.75 hr. @ $4.00) 3.00 Variable overhead (0.75 hr. @ $3.00) 2.25 Standard cost per unit $31.75 Algers computes its overhead rates using practical volume, which is 54,000 units. The actual results for the year are as follows: Units produced: 53,000 Direct materials purchased: 273,000 pounds at $2.50 per pound Direct materials used: 270,400 pounds Direct labor: 40,100 hours at $17.95 per hour Fixed overhead: $161,600 Variable overhead: $121,900 MPV = 27040 FAV MUV = 14040 = UNFAV LRV = 2005 FAV LEV = 6300 UN FIXED SPENDING VARIANCE = 400 FAV FIXED VOLUME VARIANCE = 3000 UNFAV VARIABLE SPENDING = 1600 UNFAV VARAIBLE EFFICIENCY = 1050 UNFAV Required: 5. Prepare journal entries for the following: The purchase of direct materials The issuance of direct materials to production (Work in Process) The addition of direct labor to Work in Process The addition of overhead to Work in Process The incurrence of actual overhead costs If an amount box does not require an entry, leave it blank. f. Prepare journal entries for the closing out of variances to Cost of Goods Sold. If an amount box does not require an entry, leave it blank. First, close direct materials and direct labor variances: Second, recognize the overhead variances:If an amount box does not require an entry, leave it blank. Third, close the overhead variances:Note: Close the variances with a debit balance first. For compound entries, if an amount box does not require an entry, leave it blank.
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.
Direct Materials, Direct Labor, and
Algers Company produces dry fertilizer. At the beginning of the year, Algers had the following
| Direct materials (5 lbs. @ $2.60) | $13.00 |
| Direct labor (0.75 hr. @ $18.00) | 13.50 |
| Fixed overhead (0.75 hr. @ $4.00) | 3.00 |
| Variable overhead (0.75 hr. @ $3.00) | 2.25 |
| Standard cost per unit | $31.75 |
Algers computes its overhead rates using practical volume, which is 54,000 units. The actual results for the year are as follows:
- Units produced: 53,000
- Direct materials purchased: 273,000 pounds at $2.50 per pound
- Direct materials used: 270,400 pounds
- Direct labor: 40,100 hours at $17.95 per hour
- Fixed overhead: $161,600
- Variable overhead: $121,900
MPV = 27040 FAV
MUV = 14040 = UNFAV
LRV = 2005 FAV
LEV = 6300 UN
FIXED SPENDING VARIANCE = 400 FAV
FIXED VOLUME VARIANCE = 3000 UNFAV
VARIABLE SPENDING = 1600 UNFAV
VARAIBLE EFFICIENCY = 1050 UNFAV
Required:
5. Prepare journal entries for the following:
- The purchase of direct materials
- The issuance of direct materials to production (Work in Process)
- The addition of direct labor to Work in Process
- The addition of overhead to Work in Process
- The incurrence of actual overhead costs
If an amount box does not require an entry, leave it blank.
f. Prepare journal entries for the closing out of variances to Cost of Goods Sold. If an amount box does not require an entry, leave it blank.
First, close direct materials and direct labor variances:
Second, recognize the overhead variances:
If an amount box does not require an entry, leave it blank.
Third, close the overhead variances:
Note: Close the variances with a debit balance first. For compound entries, if an amount box does not require an entry, leave it blank.
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