Chapter 16, Problem 74P

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 Product M:

For direct material:

Date	Account Titles and Explanations	Post. Ref.	Debit ($)	Credit ($)
	Work-in-Process Inventory		45,000
	Materials Efficiency Variance		1,500
	Materials Price Variance			4,650
	Accounts Payable			41,850
	(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		300,000
	Direct Labor Price Variance		3,675
	Direct Labor Efficiency Variance			6,000
	Wages Payable			297,675
	(To record the cost related to direct labor)

Table (2)

For variable overhead:

Date	Account Titles and Explanations	Post. Ref.	Debit ($)	Credit ($)
	Work-in-Process Inventory (Variable overhead)		240,000
	Variable Overhead Applied			240,000
	(To record the variable applied overhead)
	Overhead (Actual)		242,550
	Miscellaneous Payables and Inventory Accounts			242,550
	(To record the actual overhead)
	Variable Overhead (Applied)		240,000
	Variable Overhead Price Variance		7,350
	Variable Overhead Efficiency Variance			4,800
	Variable Overhead (Actual)			242,550
	(To record the variable applied overhead and variances)

Table (3)

For fixed overhead:

Date	Account Titles and Explanations	Post. Ref.	Debit ($)	Credit ($)
	Work-in-Process Inventory (Fixed overhead)		291,600
	Fixed Overhead Applied			291,600
	(To record the fixed applied overhead)
	Fixed Overhead (Actual)		313,950
	Miscellaneous Payables and Inventory Accounts			313,950
	(To record the actual overhead)
	Fixed Overhead (Applied)		291,600
	Fixed Overhead Production volume Variance		43,740
	Fixed Overhead price Variance			21,390
	Fixed Overhead (Actual)			313,950
	(To record the variable fixed applied overhead and variances)

Table (4)

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

For direct material:

Date	Account Titles and Explanations	Post. Ref.	Debit ($)	Credit ($)
	Work-in-Process Inventory		79,200
	Materials Price Variance		3,525
	Materials Efficiency Variance			1,650
	Accounts Payable			81,075
	(To record the cost related to direct material)

Table (5)

For direct labor:

Date	Account Titles and Explanations	Post. Ref.	Debit ($)	Credit ($)
	Work-in-Process Inventory		540,000
	Direct Labor Price Variance		11,100
	Direct Labor Efficiency Variance		15,000
	Wages Payable			566,100
	(To record the cost related to direct labor)

Table (6)

For variable overhead:

Date	Account Titles and Explanations	Post. Ref.	Debit ($)	Credit ($)
	Work-in-Process Inventory (Variable overhead)		378,000
	Variable Overhead Applied			378,000
	(To record the variable applied overhead)
	Overhead (Actual)		378,510
	Miscellaneous Payables and Inventory Accounts			378,510
	(To record the actual overhead)
	Variable Overhead (Applied)		378,000
	Variable Overhead Efficiency Variance		10,500
	Variable Overhead Price Variance			9,990
	Variable Overhead (Actual)			378,510
	(To record the variable applied overhead and variances)

Table (7)

For fixed overhead:

Date	Account Titles and Explanations	Post. Ref.	Debit ($)	Credit ($)
	Work-in-Process Inventory (Fixed overhead)		367,200
	Fixed Overhead Applied			367,200
	(To record the fixed applied overhead)
	Fixed Overhead (Actual)		396,000
	Miscellaneous Payables and Inventory Accounts			396,000
	(To record the actual overhead)
	Fixed Overhead (Applied)		367,200
	Fixed Overhead Production volume Variance		30,600
	Fixed Overhead price Variance			1,800
	Fixed Overhead (Actual)			396,000
	(To record the variable fixed applied overhead and variances)

Table (8)

For finished goods:

Date	Account Titles and Explanations	Post. Ref.	Debit ($)	Credit ($)
	Finished Goods Inventory (Product M)		876,600
	Finished Goods Inventory (Product V)		1,364,400
	Work-in-Process Inventory			876,600
	Work-in-Process Inventory			1,364,400
	(To record the finished goods inventory)

Table (9)

For the sales made:

Date	Account Titles and Explanations	Post. Ref.	Debit ($)	Credit ($)
	Accounts Receivable		3,150,000
	Sales Revenue			3,150,000
	(To record the sales made)
	Cost of Goods Sold (Product M)		876,600
	Cost of Goods Sold (Product V)		1,364,400
	Finished Goods Inventory			876,600
	Finished Goods Inventory			1,364,400
	(To record the cost of goods sold)

Table (10)

Record the disposition of variances:

Date	Account Titles and Explanations	Post. Ref.	Debit ($)	Credit ($)
	Cost of Goods Sold		76,710
	Materials Price Variance (Product M)		4,650
	Materials Efficiency Variance (Product V)		1,650
	Direct Labor Efficiency Variance (Product M)		6,000
	Variable Overhead Efficiency Variance (Product M)		4,800
	Variable Overhead Price Variance (Product V)		9,990
	Fixed Overhead Price Variance (Product M)		21,390
	Fixed Overhead Price Variance (Product V)		1,800
	Materials Efficiency Variance (Product M)			1,500
	Materials Price Variance (Product V)			3,525
	Direct Labor Price Variance (Product M)			3,675
	Direct Labor Price Variance (Product V)			11,100
	Direct Labor Efficiency Variance (Product V)			15,000
	Variable Overhead Price Variance (Product M)			7,350
	Variable Overhead Efficiency Variance (Product V)			10,500
	Fixed Overhead Production Volume Variance (Product M)			43,740
	Fixed Overhead Production Volume Variance (Product V)			30,600
	(To close the variance accounts to Cost of Goods Sold)

Table (11)

Working notes:

Fixed overhead cost Variance	Product M	Product V
Price Variance $AQ\left(AP-SP\right)$	$      9,990F	$    1,800F
Production Volume Variance	$   10,500U	$  30,600U
Direct Material Variances	Product M	Product V
Price Variance $AQ\left(AP-SP\right)$	$4,650	$3,525
Efficiency Variance $SP\left(AQ-SQ\right)$	$1,500	$1,650
Total Variance	$3,150F	$1,875U
Direct Labor Variances
Price Variance $AQ\left(AP-SP\right)$	$3,675	$11,100
Efficiency Variance $SP\left(AQ-SQ\right)$	$6,000	$15,000
Total Variance	$2,325F	$26,100U
Variable Overhead Variance:
Price Variance $AQ\left(AP-SP\right)$	$7,350	$9,990
Efficiency Variance $SP\left(AQ-SQ\right)$	$4,800	$10,500
Total Variance	$2,550U	$510F

Table (12)

Calculate fixed overhead variance:

For Product M:

Price Variance:

$\begin{array}{c}\text{Price Variance = Actual fixed overhead - standard fixed overhead}\\ \text{= \$313,950 - \$335,340}\\ \text{= \$21,390F}\end{array}$

Production volume variance:

$\begin{array}{c}\text{Applied fixed overhead = }\left(\begin{array}{c}\text{(Standard overhead cost}÷\text{budgeted labor hours)}\times \\ \text{ (Units produced }\times \text{ standard labor hour per unit)}\end{array}\right)\\ \text{= \$335,340 }÷\text{ 5,750 }\times \text{ 1,000 units }\times \text{ 5 hours}\\ \text{= \$291,600}\end{array}$

Thus,

$\begin{array}{c}\text{Production volume variance = Applied - fixed}\\ \text{= \$291,600 - \$335,340}\\ \text{= \$43,740U}\end{array}$

For Product V:

$\begin{array}{c}\text{Price Variance = Actual fixed overhead - standard fixed overhead}\\ \text{= \$396,000 - \$397,800}\\ \text{= \$1,800F}\end{array}$

Production volume variance:

$\begin{array}{c}\text{Applied fixed overhead = }\left(\begin{array}{c}\text{(Standard overhead cost}÷\text{budgeted labor hours)}\times \\ \text{ (Units produced }\times \text{ standard labor hour per unit)}\end{array}\right)\\ \text{= \$397,800 }÷\text{ 7,800 }\times \text{ 1,200 units }\times \text{ 6 hours}\\ \text{= \$367,200}\end{array}$

Thus,

$\begin{array}{c}\text{Production volume variance = Applied - fixed}\\ \text{= \$367,200 - \$397,800}\\ \text{= \$30,600U}\end{array}$

Prepare fixed overhead cost variance analysis for product M and V:

Fixed overhead cost Variance	Product M	Product V
Price Variance $AQ\left(AP-SP\right)$	$9,990F	$1,800F
Production Volume Variance $\text{(Applied-Fixed)}$	$   10,500U	$  30,600U

Table (13)