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Cook Company processes and packages frozen seafood. The year just ended was Cook's first year of business and they are preparing financial statements. The immediate

Cook Company processes and packages frozen seafood. The year just ended was Cook's first year of business and they are preparing financial statements. The immediate issue facing Cook is the treatment of the direct labor costs. Cook set a standard at the beginning of the year that allowed two hours of direct labor for each unit of output. The standard rate for direct labor is $28 per hour. During the year, Cook processed 60,200 units of seafood for the year, of which 4,816 units are in ending finished goods. (There are no work-in-process inventories). Cook used 124,000 hours of labor. Total direct labor costs paid by Cook for the year amounted to $3,207,500. Required: a. & b. What was the direct labor price variance and the direct labor efficiency variance for the year?

Direct labor price variance F
Direct labor efficiency variance U

c. Assume Cook writes off all variances to Cost of Goods Sold. Prepare the entries Cook would make to record and close out the variances.

  • Record the purchase and use of 124,000 hours of direct labor at an actual cost of $3,207,500 and the transfer to work in process at a standard cost of $28 per hour.

Note: Enter debits before credits.

Event General Journal Debit Credit
1
Direct labor efficiency variance

  • Record the closure of direct labor cost variances to Cost of Goods Sold.

Note: Enter debits before credits.

Event General Journal Debit Credit
2

d. Assume Cook prorates all variances to the appropriate accounts. Prepare the entries Cook would make to record and close out the variances.

  • Record the purchase and use of 124,000 hours of direct labor at an actual cost of $3,207,500 and the transfer to work in process at a standard cost of $28 per hour.

Note: Enter debits before credits.

Event General Journal Debit Credit
1

  • Record the closure of direct labor cost variances to Cost of Goods Sold and Finished Goods Inventory.

Note: Enter debits before credits.

Event General Journal Debit Credit
2

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