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:

Direct materials (7 lbs. @ $5.40)	$37.80
Direct labor (1.75 hrs. @ $18)	31.50
Variable overhead (1.75 hrs. @ $4.00)	7.00
Fixed overhead (1.75 hrs. @ $3.00)	5.25
Standard cost per unit	$81.55

During the year, Petrillo had the following activity related to valve production:

1. Production of valves totaled 20,600 units.
2. A total of 135,400 pounds of direct materials was purchased at $5.36 per pound.
3. There were 10,000 pounds of direct materials in beginning inventory (carried at $5.40 per pound). There was no ending inventory.
4. The company used 36,500 direct labor hours at a total cost of $656,270.
5. Actual fixed overhead totaled $111,000.
6. Actual variable overhead totaled $170,000.

Petrillo produces all of its valves in a single plant. Normal activity is 20,000 units per year. Standard overhead rates are computed based on normal activity measured in standard direct labor hours.

Required:

1. Compute the direct materials price and usage variances.

MPV	$fill in the blank bc2c3b0dafdd022_1	FavorableUnfavorable
MUV	$fill in the blank bc2c3b0dafdd022_3	FavorableUnfavorable

2. Compute the direct labor rate and efficiency variances.

Labor Rate Variance	$fill in the blank bc2c3b0dafdd022_5	FavorableUnfavorable
Labor Efficiency Variance	$fill in the blank bc2c3b0dafdd022_7	FavorableUnfavorable

3. Compute overhead variances using a two-variance analysis.

Budget Variance	$fill in the blank bc2c3b0dafdd022_9	FavorableUnfavorable
Volume Variance	$fill in the blank bc2c3b0dafdd022_11	FavorableUnfavorable

4. Compute overhead variances using a four-variance analysis.

Variable overhead spending variance	$fill in the blank	Favorable/Unfavorable
Variable overhead efficiency variance	$fill in the blank	Favorable/Unfavorable
Fixed overhead spending variance	$fill in the blank	Favorable/Unfavorable
Fixed overhead volume variance	$fill in the blank	Favorable/Unfavorable

5. Assume that the purchasing agent for the valve plant purchased a lower-quality direct material from a new supplier. Would you recommend that the company continue to use this cheaper direct material?

YesNo

6. Prepare all possible journal entries (assuming a four-variance analysis of overhead variances). For compound entries, if an amount box does not require an entry, leave it blank.

a.	Record materials purchase
	Materials/Miscellaneous Accounts/Variable Overhead Control/Variable Overhead Efficiency Variance/Variable Overhead Spending Variance	- Select -	- Select -
	Direct Materials Price Variance/Direct Materials Usage Variance/Fixed Overhead Control/Fixed Overhead Spending Variance/Fixed Overhead Volume Variance	- Select -	- Select -
	Accounts Payable/Cost of Goods Sold/Direct Labor Efficiency Variance/Direct Labor Rate Variance/Direct Materials Usage Variance	- Select -	- Select -
b.	Record materials usage
	Variable Overhead Control/Variable Overhead Efficiency Variance/Variable Overhead Spending Variance/Wages Payable/Work in Process	- Select -	- Select -
	Cost of Goods Sold/Direct Labor Efficiency Variance/Direct Labor Rate Variance/Direct Materials Price Variance/Direct Materials Usage Variance	- Select -	- Select -
	Materials/Miscellaneous Accounts/Variable Overhead Control/Variable Overhead Efficiency Variance/ Variable Overhead Spending Variance	- Select -	- Select -
c.	Record direct labor
	Variable Overhead Control/Variable Overhead Efficiency Variance/Variable Overhead Spending Variance/Wages Payable/Work in Process	- Select -	- Select -
	Direct Labor Efficiency Variance/Direct Labor Rate Variance/Direct Materials Price Variance/Direct Materials Usage Variance/Fixed Overhead Control	- Select -	- Select -
	Accounts Payable/Cost of Goods Sold/Direct Labor Efficiency Variance/Direct Labor Rate Variance/Direct Materials Price Variance	- Select -	- Select -
	Variable Overhead Control/Variable Overhead Efficiency Variance/Variable Overhead Spending Variance/Wages Payable/Work in Process	- Select -	- Select -
d.	Close materials usage and labor variances to CGS
	Accounts Payable/Cost of Goods Sold/Direct Labor Efficiency Variance/Direct Materials Price Variance/Direct Materials Usage Variance	- Select -	- Select -
	Accounts Payable/Direct Labor Efficiency Variance/Direct Labor Rate Variance/Direct Materials Price Variance/Direct Materials Usage Variance	- Select -	- Select -
	Accounts Payable/Cost of Goods Sold/Direct Labor Rate Variance/Direct Materials Price Variance/Direct Materials Usage Variance	- Select -	- Select -
	Accounts Payable/Cost of Goods Sold/Direct Labor Efficiency Variance/Direct Labor Rate Variance/Direct Materials Price Variance	- Select -	- Select -
e.	Close price variance to CGS
	Direct Materials Price Variance/Direct Materials Usage Variance/Fixed Overhead Control/Fixed Overhead Spending Variance/Fixed Overhead Volume Variance	- Select -
	Cost of Goods Sold/Direct Labor Efficiency Variance/Direct Labor Rate Variance/Direct Materials Price Variance/Direct Materials Usage Variance		- Select -
f.	Record actual variable overhead
	Variable Overhead Control/Variable Overhead Efficiency Variance/Variable Overhead Spending Variance/Wages Payable/Work in Process	- Select -
	Miscellaneous AccountsVariable Overhead ControlVariable Overhead Efficiency VarianceVariable Overhead Spending VarianceWages Payable		- Select -
g.	Record actual fixed overhead
	Direct Labor Efficiency VarianceDirect Labor Rate VarianceDirect Materials Price VarianceDirect Materials Usage VarianceFixed Overhead Control	- Select -
	Variable Overhead ControlVariable Overhead Efficiency VarianceVariable Overhead Spending VarianceVarious AccountsWages Payable		- Select -
h.	Apply variable overhead
	Variable Overhead ControlVariable Overhead Efficiency VarianceVariable Overhead Spending VarianceWages PayableWork in Process	- Select -
	Variable Overhead ControlVariable Overhead Efficiency VarianceVariable Overhead Spending VarianceWages PayableWork in Process		- Select -
i.	Apply fixed overhead
	Variable Overhead ControlVariable Overhead Efficiency VarianceVariable Overhead Spending VarianceWages PayableWork in Process	- Select -
	Fixed Overhead ControlFixed Overhead Spending VarianceFixed Overhead Volume VarianceMaterialsMiscellaneous Accounts		- Select -
j.	Record overhead variances
	Cost of Goods SoldFixed Overhead ControlFixed Overhead Volume VarianceVariable Overhead Spending VarianceWork in Process	- Select -	- Select -
	Accounts PayableFixed Overhead ControlFixed Overhead Volume VarianceVariable Overhead Efficiency VarianceWork in Process	- Select -	- Select -
	Cost of Goods SoldFixed Overhead ControlFixed Overhead Spending VarianceFixed Overhead Volume VarianceWork in Process	- Select -	- Select -
	Cost of Goods SoldFixed Overhead Spending VarianceFixed Overhead Volume VarianceMaterialsMiscellaneous Accounts	- Select -	- Select -
	Cost of Goods SoldDirect Labor Efficiency VarianceFixed Overhead ControlFixed Overhead Spending VarianceVariable Overhead Spending Variance	- Select -	- Select -
	Variable Overhead ControlVariable Overhead Efficiency VarianceVariable Overhead Spending VarianceWages PayableWork in Process	- Select -	- Select -
k.	Close spending and efficiency variances to CGS
	Cost of Goods SoldDirect Labor Efficiency VarianceDirect Labor Rate VarianceDirect Materials Price VarianceDirect Materials Usage Variance	- Select -	- Select -
	Cost of Goods SoldFixed Overhead Volume VarianceVariable Overhead ControlVariable Overhead Efficiency VarianceWork in Process	- Select -	- Select -
	Cost of Goods SoldFixed Overhead Spending VarianceFixed Overhead Volume VarianceVariable Overhead ControlWork in Process	- Select -	- Select -
	Accounts PayableCost of Goods SoldVariable Overhead ControlVariable Overhead Spending VarianceWork in Process	- Select -	- Select -
l.	Close volume variance to CGS
	Fixed Overhead ControlFixed Overhead Spending VarianceFixed Overhead Volume VarianceMaterialsMiscellaneous Accounts	- Select