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Concept explainers
a.
Compute the materials price and quantity variances.
a.
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Explanation of Solution
Variance:
Variance refers to the difference level in the actual cost incurred and
Compute the materials price variances.
Material price variance = Actual quantity used ×(Standard price−Actual price)=148,450lbs.×($4.20/lb.−$4.00lb. (1))=148,450lbs.×$0.20/lb.=$29,690(Favorable)
Compute the materials quantity variances.
Material quantity variance = Standard price×[Standard quantity −Actual Quantity]=$4.20/lb.×[149,940 lbs. (2)−148,450 lbs.]=$6,258(Favorable)
Therefore, the materials price and quantity variances of Enterprise S are $29,690 and $6,258.
Working Notes:
Calculate the actual price per pound:
Actual price per pound=Direct material cost Pounds of direct materials used=$593,800148,450=$4.00/lbs.
(1)
Calculate the standard quantity allowed:
Standard quantity allowed =Batches produced ×(Standard quantity allowed per batch)=147×1,020=149,940
(2)
b.
Compute the labor rate and efficiency variances.
b.
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Explanation of Solution
Compute the labor rate variances.
Labor rate variance = Actual hours ×(Standard hourly rate - Actual hourly rate)=2,200 hours ×($8.50/hour−$8.00/hour (3))=2,200 hours ×$0.50/ hour=$1,100 (Favorable)
Compute the labor efficiency variances.
Labor efficiency variance = Standard hourly rate ×(Standard hours - Actual hours)= $8.50/hour×(2,058hours (4)−2,200 hours)=$8.50/hour×−142hours=−$1,207 (Unfavorable)
Therefore, the labor rate and efficiency variances of Enterprise S are $1,100 and ($1,207).
Working Notes:
Calculate the actual rate per hour:
Actual rate per hour =Direct labor cost Hours worked by employees=$17,6002,200 hours=$ 8.00/ hour
(3)
Calculate the standard hours allowed:
Standard hours allowed =Batches produced ×(Standard hours allowed per batch)=147×14=2,058 hours
(4)
c.
Compute the manufacturing
c.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Compute the manufacturing overhead spending variances.
Particulars | Amount in $ | Amount in $ |
Standard Overhead cost incurred: | ||
Fixed | 2,800 | |
Variable (5) | 1,323 | |
4,263 | ||
Actual Overhead cost incurred: | ||
Fixed | 2,450 | |
Variable | 1,175 | |
3,625 | ||
Overhead spending variance (favorable) | 498 |
(Table 1)
Compute the manufacturing overhead volume variances.
Particulars | Amount |
Overhead applied at standard cost ($29 × 147 batches) | $ 4,263 |
Less: Standard overhead cost allowed | $4,123 |
Volume variance (favorable) | $ 140 |
(Table 2)
Therefore, the manufacturing overhead spending and volume variances of Enterprise S are $498 and $140.
Working note:
Calculate the standard variable overhead allowed:
Standard variable overhead allowed=(Variable overehead appplication rate) ×Batches produced=$9×147=$1,323
(5)
d.
Prepare
d.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Prepare journal entry to record to charge materials (at standard) to Work in Process.
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
Work in process inventory ( at Standard) (6) | 629,748 | ||
Materials quantity variance (favorable) | 6,258 | ||
Materials price variance (favorable) | 29,690 | ||
Direct materials inventory (Actual) | 593,800 | ||
(To record the cost of direct materials charged to production) |
(Table 3)
- Work in process inventory is an asset and there is an increase in the value of an asset. Hence, debit the work in process inventory by $629,748.
- Materials quantity variance is an asset and there is a decrease in the value of an asset. Hence, credit the materials quantity variance by $6,258.
- Materials price variance is an asset and there is a decrease in the value of an asset. Hence, credit the materials price variance by $26,690.
- Direct materials inventory is an asset and there is a decrease in the value of an asset. Hence, credit the direct materials inventory by $593,800.
Working notes:
Calculate the work in process inventory for direct materials:
Work in process inventory for direct materials }=147 Actual Batches×(Standard quantity allowed per batch ×Standard price of direct materials )=147×(1,020×$4.20)=147×$4,284=$629,748
(6)
e.
Prepare journal entry to record to charge direct labor (at standard) to Work in Process.
e.
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Explanation of Solution
Prepare journal entry to record to charge direct labor (at standard) to Work in Process.
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
Work in process inventory ( at Standard) (7) | 17,493 | ||
Labor efficiency variance (Unfavorable) | 1,207 | ||
Labor rate variance(Favorable) | 1,100 | ||
Direct Labor (Actual) | 17,600 | ||
(To record the cost of direct labor charged to production.) |
(Table 4)
- Work in process inventory is an asset and there is an increase in the value of an asset. Hence, debit the work in process inventory by $17,493.
- Labor efficiency variance is an asset and there is an increase in the value of an asset. Hence, debit the labor efficiency variance by $1,207.
- Labor rate variance is an asset and there is a decrease in the value of an asset. Hence, credit the labor rate variance by $1,100.
- Direct labor is an asset and there is a decrease in the value of an asset. Hence, credit the direct labor by $17,600.
Working notes:
Calculate the work in process inventory for direct labor cost:
Work in process inventory for direct labor cost }=147 Batches×(Standard hours allowed per batch ×Standard rate of direct labor )=147×(14×$8.50 per hour)=147×$119=$17,493
(7)
f.
Prepare journal entry to record to charge manufacturing overhead (at standard) to Work in Process.
f.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Prepare journal entry to record to charge manufacturing overhead (at standard) to Work in Process.
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
Work in process inventory ( at Standard) | 4,263 | ||
Overhead spending variance | 498 | ||
Overhead volume variance | 140 | ||
Manufacturing Overhead (Actual) | 3,625 | ||
(To apply overhead to production.) |
(Table 5)
- Work in process inventory is an asset and there is an increase in the value of an asset. Hence, debit the work in process inventory by $4,263.
- Overhead spending variance (Expense) is a component of
stockholder’s equity and there is an increase in the value of expense. Hence, debit the overhead spending variance by $498. - Overhead volume variance (Expense) is a component of stockholder’s equity and there is a decrease in the value of expense. Hence, credit the overhead volume variance by $140.
- Manufacturing overhead (Expense) is a component of stockholder’s equity and there is a decrease in the value of expense. Hence, credit the manufacturing expense by $3,625.
g.
Prepare journal entry to record the transfer of 147 batches of puppy meal produced in April to Finished Goods.
g.
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Explanation of Solution
Prepare journal entry to record the transfer of 147 batches of puppy meal produced in April to Finished Goods.
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
Finished goods inventory (at standard cost) | 651,504 | ||
Work in process inventory (at standard cost) (8) | 651,504 | ||
(To transfer147 batches of puppy meal to finished goods in April.) |
(Table 6)
- Finished goods inventory is an asset and there is an increase in the value of an asset. Hence, debit the finished goods inventory by $651,504.
- Work in process inventory is an asset and there is a decrease in the value of an asset. Hence, credit the work in process inventory by $651,504.
Working Notes:
Calculate the work in process inventory at standard cost:
Work in process inventory at standard cost=(Total direct materials + direct labor + manufacturing overhead charged)=$629,748+$17,493+$4,263=$651,504
(8)
h.
Prepare journal entry to record to close any over- or underapplied overhead to Cost of Goods Sold.
h.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Prepare journal entry to record to close any over- or underapplied overhead to Cost of Goods Sold.
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
Overhead spending variance (favorable) | 498 | ||
Overhead volume variance (favorable) | 140 | ||
Cost of goods sold | 638 | ||
(To close overhead variances to cost of goods sold.) |
(Table 7)
- Overhead spending variance (Expense) is a component of stockholder’s equity and there is an increase in the value of expense. Hence, debit the overhead spending variance by $498.
- Overhead volume variance (Expense) is a component of stockholder’s equity and there is an increase in the value of expense. Hence, debit the overhead volume variance by $140.
- Cost of goods sold (expense) is component of stockholder’s equity and there is a decrease in the value of expense. Hence, credit the cost of goods sold by $638.
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