Chapter 8, Problem 4E

a.

To determine

Provide a standard cost summary providing the standard unit cost.

Explanation of Solution

Materials—2 lb @ $8	$16
Labor—1 hour @ $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

Calculate material price variance:

$\begin{array}{c}\text{Material}\text{price}\text{variance}\text{=}\left[\left(\text{Actual}\text{Price}-\text{Standard}\text{Price}\right)\text{×}\text{Actual}\text{Quantity}\right]\\ \text{=}\left[\left(\text{\$8}\text{.50}-\text{\$8}\right)\text{×}1,9\text{00}\right]\\ \text{=}\text{\$950U}\end{array}$

Calculate materials quantity variance:

$\begin{array}{c}\text{Materials}\text{quantity}\text{variance}\text{=}\left[\left(\text{Actual}\text{Quantity}-\text{Standard}\text{Quantity}\right)\text{×}\text{Standard}\text{price}\right]\\ \text{=}\left[\text{1,900}\text{lb}-\left(\text{900lb}\text{×}\text{2}\text{pounds}\right)\right]\text{×}\text{\$8}\\ \text{=\$800}\text{U}\end{array}$

Calculate Labor rate variance:

$\begin{array}{c}\text{Labor}\text{rate}\text{variance =}\left[\left(\text{Actual}\text{Price}-\text{Standard}\text{Price}\right)\text{×}\text{Actual}\text{Quantity}\right]\\ \text{=}\left[\left(\text{\$10}\text{.20}-\text{\$10}\right)\text{×}9\text{00}\right]\\ \text{=}\text{\$180U}\end{array}$

Calculate labor efficiency variance:

$\begin{array}{c}\text{labor}\text{efficiency}\text{variance}\text{=}\left[\left(\text{Actual}\text{Quantity}-\text{Standard}\text{Quantity}\right)\text{×}\text{Standard}\text{price}\right]\\ \text{=}\left[\text{900}-\left(\text{900}\text{×}\text{1lb}\right)\right]\text{×}\text{\$10}\\ \text{=\$0}\end{array}$

c.

To determine

Prepare journal entries.

Explanation of Solution

(1)

Date	Account Title and Explanation	Debit ($)	Credit($)
	Work in Process $\text{(900}\text{×}\text{2lb}\text{×}\text{\$8)}$	$14,400
	Materials Price Variance $\left(\text{1,900}\text{×}\text{\$0}\text{.50}\right)$	$950
	Materials Quantity Variance $\left(100\times \$8\right)$	$800
	Materials $\left(\text{1,900}\text{×}\text{\$8}\text{.50}\right)$		$16,150
	(to record the entry for direct materials cost when the materials are issued into production)

Table (1)

(2)

Date	Account Title and Explanation	Debit ($)	Credit($)
	Work in Process $\left(\text{900}\text{×}\text{1}\text{hr}\text{×}\text{\$10}\right)$	$9,000
	Labor Rate Variance $\left(900\times \$.20\right)$	$180
	Payroll $\left(\text{900}\text{×}\text{\$10}\text{.20}\right)$		$9,180
	(to record the entry for direct labor cost)

Table (2)

(3)

Date	Account Title and Explanation	Debit ($)	Credit($)
	Work in Process	$3,600
	Applied Factory overhead $\left(900\times \$4\right)$ ( Refer to note)		$3,600
	(to record the entry applying factory overhead to work in process)

Table (3)

Note: $4 is obtained by dividing $4,000 by 1,000 units.

d.

To determine

Prepare the journal entry.

Explanation of Solution

Case 1 and case 2:

Date	Account Title and Explanation	Debit ($)	Credit($)
	Finished Goods $\left(\text{900}\text{×}\text{\$30}\right)$	$27,000
	Work in process		$27,000
	(to record the entry for finished goods at standard cost)

Table (4)