Chapter 8, Problem 2E

a.

To determine

Provide a standard cost summary providing the standard unit cost.

Explanation of Solution

Materials—2 lb @ $8	$16
Labor—1 hr @ $10	$10
Factory overhead $\left(\text{\$4,000}\text{÷}\text{1,000}\text{units}\right)$	$4
Standard unit cost	$30

Figure (1)

b.

To determine

Examine the variances for materials and labor.

Explanation of Solution

Case 1:

Calculate Labor rate variance:

$\begin{array}{c}\text{Labor}\text{rate}\text{variance =}\left[\left(\text{Actual}\text{Price}-\text{Standard}\text{Price}\right)\text{×}\text{Actual}\text{Quantity}\right]\\ \text{=}\left[\left(\text{\$10}\text{.20}-\text{\$10}\right)\text{×}1\text{,000}\right]\\ \text{=}\text{\$200U}\end{array}$

Case 2:

Calculate labor efficiency variance:

$\begin{array}{c}\text{labor}\text{efficiency}\text{variance}\text{=}\left[\left(\text{Actual}\text{Quantity}-\text{Standard}\text{Quantity}\right)\text{×}\text{Standard}\text{price}\right]\\ \text{=}\left[\text{900}-\left(\text{1,000}\text{×}\text{1lb}\right)\right]\text{×}\text{\$10}\\ \text{=\$1,000}\text{F}\end{array}$

Note: There are no material variances in these cases.

c.

To determine

Prepare journal entries.

Explanation of Solution

Case 1:

Date	Account Title and Explanation	Debit ($)	Credit($)
	Work in Process $\text{(1,000}\text{×}\text{2lb}\text{×}\text{\$8)}$	$16,000
	Materials Price Variance $\left(\text{2,000}\text{×}\text{\$0}\text{.50}\right)$	$1,000
	Materials $\left(\text{2,000}\text{×}\text{\$8}\text{.50}\right)$		$17,000
	(to record the entry for direct materials cost when the materials are issued into production)

Table (1)

Date	Account Title and Explanation	Debit ($)	Credit($)
	Work in Process $\left(\text{1,000}\text{×}\text{1}\text{hr}\text{×}\text{\$10}\right)$	$10,000
	Labor Rate Variance $\left(1,000\times \$.20\right)$	$200
	Payroll $\left(\text{1,000}\text{×}\text{\$10}\text{.20}\right)$		$10,200
	(to record the entry for direct labor cost)

Table (2)

Date	Account Title and Explanation	Debit ($)	Credit($)
	Work in Process $\left(\text{1,000}\text{×}\text{1hr}\text{×}\text{\$10}\right)$	$4,000
	Applied Factory overhead		$4,000
	(to record the entry applying factory overhead to work in process)

Table (3)

Case 2:

Date	Account Title and Explanation	Debit ($)	Credit($)
	Work in Process	$16,000
	Materials		$16,000
	(to record the entry for direct materials cost when the materials are issued into production)

Table (4)

Date	Account Title and Explanation	Debit ($)	Credit($)
	Work in Process	$10,000
	Labor efficiency Variance $\left(100\times \$10\right)$		$1,000
	Payroll		$9,000
	(to record the entry for direct labor cost)

Table (5)

Date	Account Title and Explanation	Debit ($)	Credit($)
	Work in Process	$4,000
	Applied Factory overhead		$4,000
	(to record the entry applying factory overhead to work in process)

Table (6)

d.

To determine

Prepare the journal entry.

Explanation of Solution

Case 1 and case 2:

Date	Account Title and Explanation	Debit ($)	Credit($)
	Finished Goods $\left(\text{1,000}\text{×}\text{\$30}\right)$	$30,000
	Work in process		$30,000
	(to record the entry for finished goods at standard cost)

Table (7)