Chapter 16, Problem 70P

To determine

Prepare journal entries to record the activity for the last month using standard costing.

Explanation of Solution

Prepare journal entries to record the activity for the last month using standard costing:

For direct material:

Date	Account Titles and Explanations	Post. Ref.	Debit ($)	Credit ($)
	Work-in-Process Inventory $\left(\$2\times 40\text{ yards}\times \text{5,000 units}\right)$		400,000
	Materials Price Variance		11,400
	Materials Efficiency Variance		56,000
	Accounts Payable			467,400
	(To record the cost related to direct material)

Table (1)

For direct labor:

Date	Account Titles and Explanations	Post. Ref.	Debit ($)	Credit ($)
	Work-in-Process Inventory $\left(\$20\times 5\text{ hours}\times \text{5,000 units}\right)$		500,000
	Direct Labor Price Variance		10,080
	Direct Labor Efficiency Variance		4,000
	Wages Payable			514,080
	(To record the cost related to direct labor)

Table (2)

For overhead:

Date	Account Titles and Explanations	Post. Ref.	Debit ($)	Credit ($)
	Work-in-Process Inventory (Variable overhead) $\left(\$12\times 5\text{ hours}\times \text{5,000 units}\right)$		300,000
	Work-in-Process Inventory (Fixed overhead) $\left(\$4\times 5\text{ hours}\times \text{5,000 units}\right)$		100,000
	Variable Overhead Applied			300,000
	Fixed Overhead Applied			100,000
	(To record the fixed and variable overhead applied)
	Overhead (Actual)		444,000
	Miscellaneous Payables and Inventory Accounts			444,000
	(To record the actual overhead)
	Variable Overhead (Applied)		300,000
	Fixed Overhead (Applied)		100,000
	Overhead Price Variance $\left(\$444,000–\$302,400–\$115,200\right)$		26,400
	Variable Overhead Efficiency Variance		2,400
	Fixed Overhead Production Volume Variance		15,200
	Overhead (Actual)			444,000
	(To record the fixed and variable applied overhead and variances)

Table (3)

For finished goods:

Date	Account Titles and Explanations	Post. Ref.	Debit ($)	Credit ($)
	Finished Goods Inventory		1,300,000
	Work-in-Process Inventory			1,300,000
	(To record the finished goods inventory)

Table (4)

For the sales made:

Date	Account Titles and Explanations	Post. Ref.	Debit ($)	Credit ($)
	Accounts Receivable		2,375,000
	Sales Revenue			2,375,000
	(To record the sales made)
	Cost of Goods Sold		1,300,000
	Finished Goods Inventory			1,300,000
	(To record the cost of goods sold)

Table (5)

Record the disposition of variances:

Date	Account Titles and Explanations	Post. Ref.	Debit ($)	Credit ($)
	Cost of Goods Sold		125,480
	Materials Price Variance			11,400
	Materials Efficiency Variance			56,000
	Direct Labor Price Variance			10,080
	Direct Labor Efficiency Variance			4,000
	Variable Overhead Efficiency Variance			2,400
	Fixed Overhead Production Volume Variance			15,200
	Overhead Price Variances			26,400
	(To close the variance accounts to Cost of Goods Sold)

Table (6)

The variance analysis except for variable overhead variance and fixed overhead price variance:

Direct Material Variances	Amount
Price Variance $AQ\left(AP-SP\right)$	$     11,400
Efficiency Variance $SP\left(AQ-SQ\right)$	$     56,000
Total Variance	$   67,400U
Direct Labor Variances
Price Variance $AQ\left(AP-SP\right)$	$     10,080
Efficiency Variance $SP\left(AQ-SQ\right)$	$       4,000
Total Variance	$   14,080U
Variable Overhead Variance:
Efficiency Variance $SP\left(AQ-SQ\right)$	$     2,400U
Total Variance	$     2,400U
Fixed Overhead Variance
Production Volume Variance $\left(\text{Applied -Fixed}\right)$	$    15,200
Total Variance	$   15,200U

Table (7)