Butrico Manufacturing Corporation uses a standard cost system, records materials price variances when direct materials are purchased, and prorates all variances at year-end. Variances associated with direct materials are prorated based on the balances of direct materials in the appropriate accounts, and variances associated with direct labor and manufacturing overhead are prorated to Finished Goods Inventory and to Cost of Goods Sold (CGS) on the basis of the relative direct labor cost in these accounts at year-end. The following information is for the year ended December 31: The company had no beginning inventories and no ending Work-in-Process (WIP) Inventory. It applies manufacturing overhead at 80% of standard direct labor cost. Finished goods inventory at 12/31: Direct materials $ 85,900 Direct labor 130,300 Applied manufacturing overhead 104,800 Direct materials inventory at 12/31 65,400 Cost of goods sold for the year ended 12/31: Direct materials $ 354,100 Direct labor 741,100 Applied manufacturing overhead 592,900 Direct materials price variance (unfavorable) 11,600 Direct materials usage variance (favorable) 15,400 Direct labor rate variance (unfavorable) 19,800 Direct labor efficiency variance (favorable) 5,700 Actual manufacturing overhead incurred 691,900 2. Compute the total amount of direct materials cost in the Finished Goods Inventory at December 31, after all materials variances have been prorated. Cost Accounting
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Butrico Manufacturing Corporation uses a standard cost system, records materials price variances when direct materials are purchased, and prorates all variances at year-end. Variances associated with direct materials are prorated based on the balances of direct materials in the appropriate accounts, and variances associated with direct labor and manufacturing
The following information is for the year ended December 31:
The company had no beginning inventories and no ending Work-in-Process (WIP) Inventory. It applies manufacturing overhead at 80% of standard direct labor cost.
Finished goods inventory at 12/31:
Direct materials $ 85,900
Direct labor 130,300
Applied manufacturing overhead 104,800
Direct materials inventory at 12/31 65,400
Cost of goods sold for the year ended 12/31:
Direct materials $ 354,100
Direct labor 741,100
Applied manufacturing overhead 592,900
Direct materials price variance (unfavorable) 11,600
Direct materials usage variance (favorable) 15,400
Direct labor rate variance (unfavorable) 19,800
Direct labor efficiency variance (favorable) 5,700
Actual manufacturing overhead incurred 691,900
2. Compute the total amount of direct materials cost in the Finished Goods Inventory at December 31, after all materials variances have been prorated.
Cost Accounting
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