a.
Compute the materials price and quantity variances.
a.
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)=170,000lbs.×($5.00/lb.−$4.80lb. (1))=170,000lbs.×$0.20/lb.=$34,000(Favorable)
Compute the materials quantity variances.
Material quantity variance = Standard price×[Standard quantity −Actual Quantity]=$5.00/lb.×[164,000 lbs. (2)−170,000 lbs.]=$30,000(Favorable)
Therefore, the materials price and quantity variances of Enterprise H are $34,000 and $30,000.
Working Notes:
Calculate the actual price per pound:
Actual price per pound=Direct material cost Pounds of direct materials used=$816,000170,000=$4.80/lbs.
(1)
Calculate the standard quantity allowed:
Standard quantity allowed =Batches produced ×(Standard quantity allowed per batch)=160×1,025=164,000
(2)
b.
Compute the labor rate and efficiency variances.
b.
Explanation of Solution
Compute the labor rate variances.
Labor rate variance = Actual hours ×(Standard hourly rate - Actual hourly rate)=2,500 hours ×($8.25/hour−$8.00/hour (3))=2,500 hours ×$0.25/ hour=$625 (Favorable)
Compute the labor efficiency variances.
Labor efficiency variance = Standard hourly rate ×(Standard hours - Actual hours)= $8.25/hour×(2,400hours (4)−2,500 hours)=$8.25/hour×−100hours=−$825 (Unfavorable)
Therefore, the labor rate and efficiency variances of Enterprise H are $625 and ($825).
Working Notes:
Calculate the actual rate per hour:
Actual rate per hour =Direct labor cost Hours worked by employees=$20,0002,500 hours=$ 8.00/ hour
(3)
Calculate the standard hours allowed:
Standard hours allowed =Batches produced ×(Standard hours allowed per batch)=160×15=2,400hours
(4)
c.
Compute the manufacturing
c.
Explanation of Solution
Compute the manufacturing overhead spending variances.
Particulars | Amount in $ | Amount in $ |
Standard Overhead cost incurred: | ||
Fixed | 3,300 | |
Variable (5) | 1,600 | |
4,900 | ||
Actual Overhead cost incurred: | ||
Fixed | 3,100 | |
Variable | 1,100 | |
4,200 | ||
Overhead spending variance (favorable) | 700 |
(Table 1)
Compute the manufacturing overhead volume variances.
Particulars | Amount |
Overhead applied at standard cost ($32 × 160batches) | $ 5,120 |
Less: Standard overhead cost allowed | $4,900 |
Volume variance (favorable) | $ 220 |
(Table 2)
Therefore, the manufacturing overhead spending and volume variances of Enterprise H are $700 and $220.
Working note:
Calculate the standard variable overhead allowed:
Standard variable overhead allowed=(Variable overehead appplication rate) ×Batches produced=$10×160=$1,600
(5)
d.
Prepare
d.
Explanation of Solution
Prepare journal entry to record to charge materials (at standard) to Work in Process.
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
Work in process inventory ( at Standard) (6) | 820,000 | ||
Materials quantity variance (favorable) | 30,000 | ||
Materials price variance (favorable) | 34,000 | ||
Direct materials inventory (Actual) | 816,000 | ||
(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 $820,000.
- Materials quantity variance is an asset and there is a decrease in the value of an asset. Hence, credit the materials quantity variance by $30,000.
- Materials price variance is an asset and there is a decrease in the value of an asset. Hence, credit the materials price variance by $34,000.
- Direct materials inventory is an asset and there is a decrease in the value of an asset. Hence, credit the direct materials inventory by $816,000
Working notes:
Calculate the work in process inventory for direct materials:
Work in process inventory for direct materials }=160 Actual Batches×(Standard quantity allowed per batch ×Standard price of direct materials )=160×(1,025×$5.00)=160×$5,125=$820,000
(6)
e.
Prepare journal entry to record to charge direct labor (at standard) to Work in Process.
e.
Explanation of Solution
Prepare journal entry to record to charge direct labor (at standard) to Work in Process.
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
Work in process inventory ( at Standard) (7) | 19,800 | ||
Labor efficiency variance (Unfavorable) | 825 | ||
Labor rate variance(Favorable) | 625 | ||
Direct Labor (Actual) | 20,000 | ||
(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 $19,800.
- Labor efficiency variance is an asset and there is an increase in the value of an asset. Hence, debit the labor efficiency variance by $825.
- Labor rate variance is an asset and there is a decrease in the value of an asset. Hence, credit the labor rate variance by $625.
- Direct labor is an asset and there is a decrease in the value of an asset. Hence, credit the direct labor by $20,000.
Working notes:
Calculate the work in process inventory for direct labor cost:
Work in process inventory for direct labor cost }=160 Batches×(Standard hours allowed per batch ×Standard rate of direct labor )=160×(15×$8.25 per hour)=160×$123.75=$19,800
(7)
f.
Prepare journal entry to record to charge manufacturing overhead (at standard) to Work in Process.
f.
Explanation of Solution
Prepare journal entry to record to charge manufacturing overhead (at standard) to Work in Process.
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
Work in process inventory ( at Standard) | 5,120 | ||
Overhead spending variance | 700 | ||
Overhead volume variance | 220 | ||
Manufacturing Overhead (Actual) | 4,200 | ||
(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 $5,120.
- 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 $700. - 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 $220.
- 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 $4,200.
g.
Prepare journal entry to record the transfer of 160 batches of puppy meal produced in June to Finished Goods.
g.
Explanation of Solution
Prepare journal entry to record the transfer of 160 batches of puppy meal produced in June to Finished Goods
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
Finished goods inventory (at standard cost) | 844,920 | ||
Work in process inventory (at standard cost) (8) | 844,920 | ||
(To transfer 160 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 $844,920.
- 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 $844,920.
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)=$820,000+$19,800+$5,120=$844,920
(8)
h.
Prepare journal entry to record to close any over- or underapplied overhead to Cost of Goods Sold.
h.
Explanation of Solution
Prepare journal entry to record to close any over- or underapplied overhead to Cost of Goods Sold.
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
Overhead spending variance (favorable) | 700 | ||
Overhead volume variance (favorable) | 220 | ||
Cost of goods sold | 920 | ||
(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 $700.
- 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 $220.
- 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 $920.
Want to see more full solutions like this?
Chapter 24 Solutions
Gen Combo Looseleaf Financial And Managerial Accounting; Connect Access Card
- Jacky Corporation uses the weighted-average method in its process costing system. The ending work in process inventory consists of 20,000 units. The ending work in process inventory is 100% complete with respect to materials and 80% complete with respect to labor and overhead. If the cost per equivalent unit for the period is $4.00 for material and $1.20 for labor and overhead, what is the balance of the ending work in process inventory account would be: (Do not round Cost per equivalent unit)arrow_forwardKindly help me Accounting questionarrow_forwardFinancial Accounting: A particular security's default risk premium is 1 percent. For all securities, the inflation risk premium is 2 percent and the real interest rate is 3 percent. The security's liquidity risk premium is 5 percent and maturity risk premium is 4 percent. The security has no special covenants. What is the security's equilibrium rate of return?arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education