Concept explainers
a.
Compute the materials price variance and the materials quantity variance and also prepare
a.

Explanation of Solution
Variance:
Variance refers to the difference level in the actual cost incurred and
Compute the materials price variance and the materials quantity variance:
Therefore, the materials price and quantity variances of Incorporation P is ($880) and ($1,200).
Prepare journal entry to record the cost of direct materials used during June in the Work in Process account (at standard).
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
Work in process inventory (1) | 12,000 | ||
Materials price variance | 880 | ||
Material quantity variance | 1,200 | ||
Direct materials inventory (2) | 14,000 | ||
(To record cost of direct materials used in June.) |
(Table 1)
- 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 $12,000.
- Materials price variance is an asset and there is an increase in the value of an asset. Hence, debit the materials price variance by $880.
- Materials quantity variance is an asset and there is an increase in the value of an asset. Hence, debit the materials quantity variance by $1,200.
- Direct materials inventory is an asset and there is a decrease in the value of an asset. Hence, credit the direct materials inventory by $14,000.
Working Notes:
Calculate the work in process inventory for direct materials:
(1)
Calculate the direct materials inventory:
(2)
b.
Compute the labor rate variance and the labor efficiency variance and also prepare journal entry to record the cost of direct labor used during June in the Work in Process account (at standard).
b.

Explanation of Solution
Compute the labor rate variance and the labor efficiency variance:
Therefore, the labor rate and efficiency variances of Incorporation P is ($1,440) and $4,000.
Prepare journal entry to record the cost of direct labor used during June in the Work in Process account (at standard).
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
Work in process inventory (3) | 40,000 | ||
Labor rate variance | 1,440 | ||
Labor efficiency variance | 4,000 | ||
Direct Labor (4) | 37,440 | ||
(To record the cost of direct labor charged to production in June.) |
(Table 2)
- 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 $40,000.
- Labor rate variance is an asset and there is an increase in the value of an asset. Hence, debit the labor rate variance by $1,440.
- Labor efficiency variance is an asset and there is a decrease in the value of an asset. Hence, credit the labor efficiency variance by $4,000.
- Direct labor is an asset and there is a decrease in the value of an asset. Hence, credit the direct labor by $37,440.
Working notes:
Calculate the work in process inventory for direct labor cost:
(3)
Calculate the direct labor inventory:
(4)
c.
Compute the
c.

Explanation of Solution
Compute the overhead spending variance and the overhead volume variance
Particulars | Amount in $ |
Overhead budgeted for 8,000 units: | |
Fixed | 5,000 |
Variable (8,000 units × $0.50 per unit) | 4,000 |
Total overhead per flexible budget | 9,000 |
Less: Actual overhead in June ($5000+$4,600) | 9,600 |
Overhead spending variance (unfavorable) | (600) |
(Table 3)
Particulars | Amount |
Overhead applied at standard cost ($1 ×8,000 units) | $ 8,000 |
Less: Overhead per flexible budget | $9,000 |
Volume variance (unfavorable) | $ (1,000) |
(Table 4)
Therefore, the manufacturing overhead spending and volume variances of Incorporation P are ($600) and ($1,000).
Prepare journal entry to assign overhead cost to production in June.
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
Work in process inventory (5) | 8,000 | ||
Overhead spending variance | 600 | ||
Overhead volume variance | 1,000 | ||
Manufacturing Overhead (6) | 9,600 | ||
(To apply overhead cost of to 8,000 units produced at standard rate of $1 per unit) |
(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 $8,000.
- 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 $600. - Overhead volume variance (Expense) is a component of stockholder’s equity and there is an increase in the value of expense. Hence, debit the volume variance by $1,000.
- 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 $9,600.
Working notes:
Calculate the work in process inventory for overhead:
(5)
Calculate the direct labor inventory:
(6)
Want to see more full solutions like this?
Chapter 24 Solutions
Connect Online Access for Financial Accounting
- What is the final selling price to the consumer of this financial accounting question?arrow_forwardA company uses the FIFO method for inventory costing. At the start of the period the production department had 36,000 units in beginning Work in Process inventory which was 48% complete; the department completed and transferred 173,000 units. At the end of the period, 30,000 units were in the ending Work in Process inventory and are 75% complete. The production department had labor costs in the beginning goods in process inventory of $107,000 and total labor costs added during the period are $727,150. Compute the equivalent cost per unit for labor.arrow_forwardI don't need ai answer general accounting question calculate net income?arrow_forward
- MC Company made sales to two customers. Both sales were on credit terms of 2/10, n/30. Customer A purchased $30,000 of goods, returned none, and paid in 9 days. Customer B purchased $40,000 of goods, returned, and was given credit for $4,000 of goods and paid in 25 days. What was the net revenue from these two customers?a. $70,000 b. $66,000 c. $65,400 answerarrow_forwardCompute the manufacturing overhead rate for the yeararrow_forwardWhat was the net revenuearrow_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





