Excel Applications for Accounting Principles
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Problem 9.32 Basic Variance Analysis, Revision of Standards, Journal Entries
Petrillo Company produces engine parts for large motors. The company uses a standard cost
system for production costing and control. The standard cost sheet for one of its higher volume
products (a valve) is as follows:
Transcribed Image Text:Direct materials (7 lbs. @ $5.40)
Direct labor (1.75 hrs. @ $18)
Variable overhead (1.75 hrs. @ $4.00)
Fixed overhead (1.75 hrs. @ $3.00)
Standard unit cost
$37.80
31.50
7.00
5.25
$81.55
During the year, Petrillo had the following activity related to valve production:
a. Production of valves totaled 20,600 units.
b. A total of 135,400 pounds of direct materials was purchased at $5.36 per pound.
C.
There were 10,000 pounds of direct materials in beginning inventory (carried at $5.40 per
pound). There was no ending inventory.
d. The company used 36,500 direct labor hours at a total cost of $656,270.
e. Actual fixed overhead totaled $110,000.
f. Actual variable overhead totaled $168,000.
Petrillo produces all of its valves in a single plant. Normal activity is 20,000 units per year. Stand-
ard overhead rates are computed based on normal activity measured in standard direct labor hours.
Required:
1. Compute the direct materials price and usage variances.
2. Compute the direct labor rate and efficiency variances.
3. Compute overhead variances using a two-variance analysis.
4. Compute overhead variances using a four-variance analysis.
5. Assume that the purchasing agent for the valve plant purchased a lower-quality direct mate-
rial from a new supplier. Would you recommend that the company continue to use this
cheaper direct material? If so, what standards would likely need revision to reflect this deci-
sion? Assume that the end product's quality is not significantly affected.
6. Prepare all possible journal entries (assuming a four-variance analysis of overhead variances).
in lournal Entries
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