DM variances; journal entries Skip Company produces a product called Lem. The standard direct material cost to produce one unit of Lem is four quarts of raw material at $2.50 per quart. During May, 4,200 quarts of raw material were purchased at a cost of $10,080. All the purchased material was used to produce 1,000 units of Lem. a. Compute the material price variance and material quantity variance for May. Note: Do not use a negative sign with your answers. Material price variance $ Material quantity variance $ 420 Favorable 0x Unfavorable b. Assume the same facts except that Skip Company purchased 6,000 quarts of material at the previously calculated cost per quart, but used only 4,200 quarts. Compute the material price variance and material quantity variance for May, assuming that Skip identifies variances at the earliest possible time. Note: Do not use a negative sign with your answers. Material price variance $ 0x Favorable 500 Unfavorable Material quantity variance $ c. Prepare the journal entries to record the material price and usage variances calculated in (b). Note: List any multiple debits or any multiple credits in alphabetical order by account name. Account Raw Material Inventory Accounts Payable Debit Credit 0 x 0✓ 0x Material Price Variance 0✓ To record material price variance Material Quantity Variance 500- Work in Process Inventory 10000✓ Raw Material Inventory 0✓ 10500 To record material quantity variance
DM variances; journal entries Skip Company produces a product called Lem. The standard direct material cost to produce one unit of Lem is four quarts of raw material at $2.50 per quart. During May, 4,200 quarts of raw material were purchased at a cost of $10,080. All the purchased material was used to produce 1,000 units of Lem. a. Compute the material price variance and material quantity variance for May. Note: Do not use a negative sign with your answers. Material price variance $ Material quantity variance $ 420 Favorable 0x Unfavorable b. Assume the same facts except that Skip Company purchased 6,000 quarts of material at the previously calculated cost per quart, but used only 4,200 quarts. Compute the material price variance and material quantity variance for May, assuming that Skip identifies variances at the earliest possible time. Note: Do not use a negative sign with your answers. Material price variance $ 0x Favorable 500 Unfavorable Material quantity variance $ c. Prepare the journal entries to record the material price and usage variances calculated in (b). Note: List any multiple debits or any multiple credits in alphabetical order by account name. Account Raw Material Inventory Accounts Payable Debit Credit 0 x 0✓ 0x Material Price Variance 0✓ To record material price variance Material Quantity Variance 500- Work in Process Inventory 10000✓ Raw Material Inventory 0✓ 10500 To record material quantity variance
Chapter1: Financial Statements And Business Decisions
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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.
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Transcribed Image Text:DM variances; journal entries
Skip Company produces a product called Lem. The standard direct material cost to produce one unit of Lem is four quarts of raw material at $2.50 per quart. During May, 4,200 quarts of raw material were purchased
at a cost of $10,080. All the purchased material was used to produce 1,000 units of Lem.
a. Compute the material price variance and material quantity variance for May.
Note: Do not use a negative sign with your answers.
$
Material price variance
Material quantity variance $
420
Favorable
0 × Unfavorable
b. Assume the same facts except that Skip Company purchased 6,000 quarts of material at the previously calculated cost per quart, but used only 4,200 quarts. Compute the material price variance and material
quantity variance for May, assuming that Skip identifies variances at the earliest possible time.
Note: Do not use a negative sign with your answers.
$
0 Favorable
500 Unfavorable
Material price variance
Material quantity variance $
c. Prepare the journal entries to record the material price and usage variances calculated in (b).
Note: List any multiple debits or any multiple credits in alphabetical order by account name.
Account
Debit
Credit
Raw Material Inventory
÷
0 ×
0
Accounts Payable
Material Price Variance
0 ×
0 ✓
×
To record material price variance
Material Quantity Variance
Work in Process Inventory
Raw Material Inventory
÷
500
0 ✓
10000
0
0 ✓
10500
To record material quantity variance
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