Chapter 23, Problem 14E

To determine

Management by exception:

The process of analyzing the difference between expected performance and actual performance and determining that part of the business operation where the attention of management is required utmost is called management by exception.

Direct Material Price Variance:

The variance which is caused by the difference between the actual price per unit incurred and the expected price per unit to be incurred on the direct material is called the direct material price variance.

Direct Material Quantity Variance:

At the standard price, the difference between the actual quantity and standard quantity is termed as direct material quantity variance. The quantity variance measures the efficiency of management in utilizing the direct material for the production.

To determine:

1. The journal entry to record the material cost and material variances.

2. Preparation of adjusting journal entry to close the variance accounts.

3. Determine the variance that should be investigated according to the management by exception.