Question
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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