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Cost Accounting Butrico Manufacturing Corporation uses a standard cost system, records materials price variances when direct materials are purchased, and prorates all variances at year-end.

Cost Accounting

Butrico Manufacturing Corporation uses a standard cost system, records materials price variances when direct materials are purchased, and prorates all variances at year-end. Variances associated with direct materials are prorated based on the balances of direct materials in the appropriate accounts, and variances associated with direct labor and manufacturing overhead are prorated to Finished Goods Inventory and to Cost of Goods Sold (CGS) on the basis of the relative direct labor cost in these accounts at year-end.

The following information is for the year ended December 31:

The company had no beginning inventories and no ending Work-in-Process (WIP) Inventory. It applies manufacturing overhead at 80% of standard direct labor cost.

Finished goods inventory at 12/31:

Direct materials $ 85,900

Direct labor 130,300

Applied manufacturing overhead 104,800

Direct materials inventory at 12/31 65,400

Cost of goods sold for the year ended 12/31:

Direct materials $ 354,100

Direct labor 741,100

Applied manufacturing overhead 592,900

Direct materials price variance (unfavorable) 11,600

Direct materials usage variance (favorable) 15,400

Direct labor rate variance (unfavorable) 19,800

Direct labor efficiency variance (favorable) 5,700

Actual manufacturing overhead incurred 691,900

1. Compute the amount of Direct Materials Price Variance to be prorated to Finished Goods Inventory at December 31.

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