Financial & Managerial Accounting
Financial & Managerial Accounting
17th Edition
ISBN: 9780078025778
Author: Jan Williams, Susan Haka, Mark S Bettner, Joseph V Carcello
Publisher: McGraw-Hill Education
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Question
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Chapter 24, Problem 5AP

a.

To determine

Compute material price and quantity price variances.

a.

Expert Solution
Check Mark

Explanation of Solution

Calculate material price variance.

Material price variance=(Standard price Actual price)×Actual quantity=($1.30$1.25)×16,500gallons=$825favorable

Working note:

Calculate actual price.

Actual price(per pound)=Direct material costActual quantity=$20,62516,500gallons=$1.25per pound (1)

Calculate material quantity variance.

Material quantity variance=(Standard quantityActual quantity)×Standard price=(16,250gallons16,500gallons)×$1.25=$325unfavorable

Working note:

Calculate standard quantity.

Standard quantity =Standard cases×Standard quantity allowed per case=5,000cases×$3.25gallon per case=16,250gallons (2)

b.

To determine

Compute the labor rate and efficiency variances.

b.

Expert Solution
Check Mark

Explanation of Solution

Calculate labor rate variance.

Labor rate variance=(Standard rate Actual rate)×Actual labor hours=($16$15)×4,200hours=$4,200Favorable

Compute labor efficiency variance.

Labor efficency variance=(Standard hoursActual hours)×Standard rate=(3,750hours4,200hours)×$16=$7,200unfavorable

Working note:

Standard hours(Allowed)=Standard cases×Standard hours allowed per case= 5,000cases× $0.75hours per case=3,750hours (3)

c.

To determine

Compute the manufacturing overhead spending and volume variances.

c.

Expert Solution
Check Mark

Explanation of Solution

Calculate manufacturing overhead spending variances.

Overhead spending variance=Standard overhead costActual overhead cost =$10,100$9,950=$150Favorable

Working notes:

Calculate Stand overhead cost.

Standard overhead cost(Variable overhead costs +Fixed manufacturing overhead costs)=($5,000cases×$1.50per case)+$2,600=$7,500+$2,600=$10,100 (4)

Calculate overhead volume variance.

Overhead volume variance =Applied overhead costStandard overhead cost=$10,000$10,100=$100Unfavorable

Working note:

Calculate applied overhead cost.

Applied overhead cost=(Standardcases ×Total overhead application rate)=5,000cases×$2=$10,000 (5)

d.

To determine

Prepare journal entries to record (1) charge materials (at standard) to work in process, (2) Charge direct labor (at standard) to work in process, (3) Charge manufacturing overhead (at standard) to work in process, (4) Transfer the cost of 5,000 cases to finished goods, and (5) close any over-under applied overhead to cost of goods sold.

d.

Expert Solution
Check Mark

Explanation of Solution

(1)

Prepare journal entry to record charge materials (at standard) to work in process.

Account titles and ExplanationDebitCredit
Work in process inventory$21,125
Material quantity variance$325
     Material price variance$825
     Direct material inventory$20,625
(To record cost of direct materials charged to production)

Table (1)

Working note:

Calculate work in process inventory – direct materials.

Work in process inventory - Direct materials)=(Actual cases×Standard quantity allowed per case×Direct materials standard price)=5,000cases×3.25gallons allowed per case×$1.30per gallon=$21,125 (6)

  • Work in process inventory is a current asset, and it is increased. Therefore, debit work in process inventory account for $21,125.
  • Material quantity variance is a component of stockholders’ equity, and it is decreased. Therefore, debit material quantity variance account for $325.
  • Material price variance is a component of stockholders’ equity, and it is increased. Therefore, credit material price variance account for $825.
  • Direct material inventory is a current asset, and it is decreased. Therefore, credit direct material inventory account for $20,625.

(2)

Prepare journal entry to record Charge direct labor (at standard) to work in process.

Account titles and ExplanationDebitCredit
Work in process inventory$60,000
Labor efficiency variance$7,200
     Labor rate variance$4,200
     Direct labor$63,000
(To record the cost of direct labor charged to production)

Table (2)

Working note:

Calculate work in process inventory – direct labor.

Work in process inventory - direct labor)=(Actual cases×standard hours allowed per case×Direct labor standard rate)=5,000cases×0.75hours allowed per case×$16per hour=$60,000 (7)

  • Work in process inventory is a current asset, and it is increased. Therefore, debit work in process inventory account for $60,000.
  • Labor efficiency variance is a component of stockholders’ equity, and it is decreased. Therefore, debit labor efficiency variance account for $7,200.
  • Labor rate variance is a component of stockholders’ equity, and it is increased. Therefore, credit labor rate variance account for $4,200.
  • Direct labor is a current asset, and it is decreased. Therefore, credit direct labor account for $63,000.

(3)

Prepare journal entry to record Charge manufacturing overhead (at standard) to work in process.

Account titles and ExplanationDebitCredit
Work in process inventory$10,000
Overhead volume variance$100
     Overhead spending variance$150
     Manufacturing overhead$9,950
(To record overhead applies to production)

Table (3)

  • Work in process inventory is a current asset, and it is increased. Therefore, debit work in process inventory account for $10,000.
  • Overhead volume variance is a component of stockholders’ equity, and it is decreased. Therefore, debit overhead volume variance account for $100.
  • Overhead spending variance is a component of stockholders’ equity, and it is increased. Therefore, credit overhead spending variance account for $150.
  • Manufacturing overhead is a component of stockholders’ equity, and it is increased. Therefore, credit manufacturing overhead account for $9,950.

(4)

Prepare journal entry to record Transfer the cost of 5,000 cases to finished goods.

Account titles and ExplanationDebitCredit
Finished goods inventory$91,125
     Work in process inventory$91,125
(To record transfer to finished goods inventory)

Table (4)

Working note:

Calculate work in process inventory.

Work in process inventory=Direct materials+Direct labor +Overhead=$21,125+$60,000+$10,000=$91,125 (8)

  • Finished goods inventory is a current asset, and it is increased. Therefore, debit finished goods inventory account for $91,125.
  • Work in process inventory is a current asset, and it is decreased. Therefore, credit work in process inventory account for $91,125.

(5)

Prepare journal entry to record close overhead variances to cost of goods sold.

Account titles and ExplanationDebitCredit
Overhead spending variance$150
     Overhead volume variance$100
      Cost of goods sold$50
(To record close overhead variance to cost of goods sold)

Table (5)

  • Overhead spending variance is a component of stockholders equity, and it is decreased. Therefore, debit overhead spending variance account for $150.
  • Overhead volume variance is a component of stockholders’ equity, and it is increased. Therefore, credit overhead volume variance account for $100.
  • Cost of goods sold is a component of stockholders’ equity, and it is increased. Therefore, credit cost of goods sold account for $50.

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Chapter 24 Solutions

Financial & Managerial Accounting

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What is variance analysis?; Author: Corporate finance institute;https://www.youtube.com/watch?v=SMTa1lZu7Qw;License: Standard YouTube License, CC-BY