Question
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
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:
Production of valves totaled 20,600 units.
A total of 135,500 pounds of direct materials was purchased at $5.36 per pound.
There were 10,000 pounds of direct materials in beginning inventory (carried at $5.40 per pound). There was no ending inventory.
The company used 36,500 direct labor hours at a total cost of $656,270.
Actual fixed overhead totaled $110,000.
Actual variable overhead totaled $166,000.
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 e6699006afdd034_1 | FavorableUnfavorableFavorable |
| MUV | $fill in the blank e6699006afdd034_3 | FavorableUnfavorableUnfavorable |
2. Compute the direct labor rate and efficiency variances.
| Labor Rate Variance | $fill in the blank e6699006afdd034_5 | FavorableUnfavorableUnfavorable |
| Labor Efficiency Variance | $fill in the blank e6699006afdd034_7 | FavorableUnfavorableUnfavorable |
3. Compute overhead variances using a two-variance analysis.
| Budget Variance | $fill in the blank e6699006afdd034_9 | FavorableUnfavorableUnfavorable |
| Volume Variance | $fill in the blank e6699006afdd034_11 | FavorableUnfavorableFavorable |
4. Compute overhead variances using a four-variance analysis.
| Variable overhead spending variance | $fill in the blank e6699006afdd034_13 | FavorableUnfavorableUnfavorable |
| Variable overhead efficiency variance | $fill in the blank e6699006afdd034_15 | FavorableUnfavorableUnfavorable |
| Fixed overhead spending variance | $fill in the blank e6699006afdd034_17 | FavorableUnfavorableUnfavorable |
| Fixed overhead volume variance | $fill in the blank e6699006afdd034_19 | FavorableUnfavorableFavorable |
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?
YesNoNo
Question Content Area
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 | ||
| MaterialsMiscellaneous AccountsVariable Overhead ControlVariable Overhead Efficiency VarianceVariable Overhead Spending VarianceMaterials | Materials | Materials | |
| Direct Materials Price VarianceDirect Materials Usage VarianceFixed Overhead ControlFixed Overhead Spending VarianceFixed Overhead Volume VarianceDirect Materials Price Variance | Direct Materials Price Variance | Direct Materials Price Variance | |
| Accounts PayableCost of Goods SoldDirect Labor Efficiency VarianceDirect Labor Rate VarianceDirect Materials Usage VarianceAccounts Payable | Accounts Payable | Accounts Payable | |
| b. | Record materials usage | ||
| Variable Overhead ControlVariable Overhead Efficiency VarianceVariable Overhead Spending VarianceWages PayableWork in ProcessWork in Process | Work in Process | Work in Process | |
| Cost of Goods SoldDirect Labor Efficiency VarianceDirect Labor Rate VarianceDirect Materials Price VarianceDirect Materials Usage VarianceDirect Materials Usage Variance | Direct Materials Usage Variance | Direct Materials Usage Variance | |
| MaterialsMiscellaneous AccountsVariable Overhead ControlVariable Overhead Efficiency VarianceVariable Overhead Spending VarianceMaterials | Materials | Materials | |
| c. | Record direct labor | ||
| Variable Overhead ControlVariable Overhead Efficiency VarianceVariable Overhead Spending VarianceWages PayableWork in ProcessWork in Process | Work in Process | Work in Process | |
| Direct Labor Efficiency VarianceDirect Labor Rate VarianceDirect Materials Price VarianceDirect Materials Usage VarianceFixed Overhead ControlDirect Labor Efficiency Variance | Direct Labor Efficiency Variance | Direct Labor Efficiency Variance | |
| Accounts PayableCost of Goods SoldDirect Labor Efficiency VarianceDirect Labor Rate VarianceDirect Materials Price VarianceDirect Labor Rate Variance | Direct Labor Rate Variance | Direct Labor Rate Variance | |
| Variable Overhead ControlVariable Overhead Efficiency VarianceVariable Overhead Spending VarianceWages PayableWork in ProcessWages Payable | Wages Payable | Wages Payable | |
| d. | Close materials usage and labor variances to CGS | ||
| Accounts PayableCost of Goods SoldDirect Labor Efficiency VarianceDirect Materials Price VarianceDirect Materials Usage VarianceCost of Goods Sold | Cost of Goods Sold | Cost of Goods Sold | |
| Accounts PayableDirect Labor Efficiency VarianceDirect Labor Rate VarianceDirect Materials Price VarianceDirect Materials Usage VarianceDirect Labor Rate Variance | Direct Labor Rate Variance | Direct Labor Rate Variance | |
| Accounts PayableCost of Goods SoldDirect Labor Rate VarianceDirect Materials Price VarianceDirect Materials Usage VarianceDirect Materials Usage Variance | Direct Materials Usage Variance | Direct Materials Usage Variance | |
| Accounts PayableCost of Goods SoldDirect Labor Efficiency VarianceDirect Labor Rate VarianceDirect Materials Price VarianceDirect Labor Efficiency Variance | Direct Labor Efficiency Variance | Direct Labor Efficiency Variance | |
| e. | Close price variance to CGS | ||
| Direct Materials Price VarianceDirect Materials Usage VarianceFixed Overhead ControlFixed Overhead Spending VarianceFixed Overhead Volume VarianceDirect Materials Price Variance | Direct Materials Price Variance | ||
| Cost of Goods SoldDirect Labor Efficiency VarianceDirect Labor Rate VarianceDirect Materials Price VarianceDirect Materials Usage VarianceCost of Goods Sold | Cost of Goods Sold | ||
| f. | Record actual variable overhead | ||
| Variable Overhead ControlVariable Overhead Efficiency VarianceVariable Overhead Spending VarianceWages PayableWork in ProcessVariable Overhead Control | Variable Overhead Control | ||
| Miscellaneous AccountsVariable Overhead ControlVariable Overhead Efficiency VarianceVariable Overhead Spending VarianceWages PayableMiscellaneous Accounts | Miscellaneous Accounts | ||
| g. | Record actual fixed overhead | ||
| Direct Labor Efficiency VarianceDirect Labor Rate VarianceDirect Materials Price VarianceDirect Materials Usage VarianceFixed Overhead ControlFixed Overhead Control | Fixed Overhead Control | ||
| Variable Overhead ControlVariable Overhead Efficiency VarianceVariable Overhead Spending VarianceVarious AccountsWages PayableVarious Accounts | Various Accounts | ||
| h. | Apply variable overhead | ||
| Variable Overhead ControlVariable Overhead Efficiency VarianceVariable Overhead Spending VarianceWages PayableWork in ProcessWork in Process | Work in Process | ||
| Variable Overhead ControlVariable Overhead Efficiency VarianceVariable Overhead Spending VarianceWages PayableWork in ProcessVariable Overhead Control | Variable Overhead Control | ||
| i. | Apply fixed overhead | ||
| Variable Overhead ControlVariable Overhead Efficiency VarianceVariable Overhead Spending VarianceWages PayableWork in ProcessWork in Process | Work in Process | ||
| Fixed Overhead ControlFixed Overhead Spending VarianceFixed Overhead Volume VarianceMaterialsMiscellaneous AccountsFixed Overhead Control | Fixed Overhead Control | ||
| j. | Record overhead variances | ||
| Cost of Goods SoldFixed Overhead ControlFixed Overhead Volume VarianceVariable Overhead Spending VarianceWork in ProcessVariable Overhead Spending Variance | Variable Overhead Spending Variance | Variable Overhead Spending Variance | |
| Accounts PayableFixed Overhead ControlFixed Overhead Volume VarianceVariable Overhead Efficiency VarianceWork in ProcessVariable Overhead Efficiency Variance | Variable Overhead Efficiency Variance | Variable Overhead Efficiency Variance | |
| Cost of Goods SoldFixed Overhead ControlFixed Overhead Spending VarianceFixed Overhead Volume VarianceWork in ProcessFixed Overhead Spending Variance | Fixed Overhead Spending Variance | Fixed Overhead Spending Variance | |
| Cost of Goods SoldFixed Overhead Spending VarianceFixed Overhead Volume VarianceMaterialsMiscellaneous AccountsFixed Overhead Volume Variance | Fixed Overhead Volume Variance | Fixed Overhead Volume Variance | |
| Cost of Goods SoldDirect Labor Efficiency VarianceFixed Overhead ControlFixed Overhead Spending VarianceVariable Overhead Spending VarianceFixed Overhead Control | Fixed Overhead Control | Fixed Overhead Control | |
| Variable Overhead ControlVariable Overhead Efficiency VarianceVariable Overhead Spending VarianceWages PayableWork in ProcessVariable Overhead Control | Variable Overhead Control | Variable Overhead Control | |
| k. | Close spending and efficiency variances to CGS | ||
| Cost of Goods SoldDirect Labor Efficiency VarianceDirect Labor Rate VarianceDirect Materials Price VarianceDirect Materials Usage VarianceCost of Goods Sold | Cost of Goods Sold | Cost of Goods Sold | |
| Cost of Goods SoldFixed Overhead Volume VarianceVariable Overhead ControlVariable Overhead Efficiency VarianceWork in ProcessVariable Overhead Efficiency Variance | Variable Overhead Efficiency Variance | Variable Overhead Efficiency Variance | |
| Cost of Goods SoldFixed Overhead Spending VarianceFixed Overhead Volume VarianceVariable Overhead ControlWork in ProcessFixed Overhead Spending Variance | Fixed Overhead Spending Variance | Fixed Overhead Spending Variance | |
| Accounts PayableCost of Goods SoldVariable Overhead ControlVariable Overhead Spending VarianceWork in ProcessVariable Overhead Spending Variance | Variable Overhead Spending Variance | Variable Overhead Spending Variance | |
| l. | Close volume variance to CGS | ||
| Fixed Overhead ControlFixed Overhead Spending VarianceFixed Overhead Volume VarianceMaterialsMiscellaneous AccountsFixed Overhead Volume Variance | Fixed Overhead Volume Variance | ||
| Cost of Goods SoldDirect Labor Efficiency VarianceDirect Labor Rate VarianceDirect Materials Price VarianceDirect Materials Usage VarianceCost of Goods Sold |
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Intermediate Accounting Volume 1
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
17th Edition
1119613698, 978-1119613695
