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: $37.80 Direct materials (7 lbs. $5.40) Direct labor (1.75 hrs. $18) Variable overhead (1.75 hrs. 54.00) 31.50 7.00 Fixed overhead (1.75 hrs. O $3.00) 5.25 Standard cost per unit $51.55 During the year, Petrillo had the following activity related to valve production a. Production of valves totaled 20,600 units b. A total of 135,600 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 Actual variable overhead totaled $168,000 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 5,424 favorable MUV 6,480 X Unfavorable 2. Compute the direct labor rate and efficiency variances 2. Compute the direct labor rate and efficiency variances. Labor Rate Variance 730 Favorable Labor Efficiency Variance 8,100 Unfavorable 3. Compute overhead variances using a two-variance analysis Budget Variance 28,800 Unfavorable Volume Variance 36,500 Favorable 4. Compute overhead variances using a four-vartance analysis Variable overhead spending variance 22,000 Unfavorable Unfavorable 1,800 Variable overhead efficiency variance Fixed overhead spending variance 5,000 Unfavorable Fixed overhead volume variance 3,150 Favorable 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? No Check My Wor 1. MPV (Materials price variance) - (AP - SP) X AQ MUV (Materials usage variance) - (AQ - SQ) SP 2. URV (Labor rate variance) - (AR-SR) XAH LEV (Labor efficiency variance) - (AH-SH) X SR 3. Compute overhead variances using a two variance analysis Budget Variance 28,800 Unfavorable Volume Variance 36,500 X Favorable 4. Compute overhead variances using a four-variance analysis Variable overhead spending variance 22,000 Variable overhead efficiency variance 1,800 Fixed overhead spending variance 5,000 Unfavorable Unfavorable Unfavorable Fixed overhead volume variance 3,150 Favorable 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? No Feedback Check My Work 1. MPV (Materials price variance) - (AP-SP) XAQ MUV (Materials usage variance) = (AQ - 50) SP 2. LRV (Labor rate variance) (AR-SR) XAH LEV (Labor efficiency variance) - (AH-SH) X SR 3. The two- and three-variance analyses do not require knowledge of actual variable and actual fred overhead 4. The four-variance method calculates two variances for variable overhead and two variances for fixed overhead. 5. Consider the ethics of this question and discuss Previous 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 732,240 ov Direct Materials Price Variance 0 5.494 Accounts Payable 724.816 778680 b. Record materials usage Work in Process Direct Materials Usage Variance Materials 6,480 X . 785.160 x 6.00 Record direct labor Work in Process Direct Labor Efficiency Variance Direct Labor Rato Variance Wages Payable N.1007 . 0 730 TO 150 x 0 70 d. Close materials usage and tabor variances to CGS Cost of Goods Sold Direct Labor Rate Variance Direct Materials Usage Variance Direct Labor Efficiency Variance NOX 100 Close price variance to CGS Direct Materials Price Variance 5.414