Direct Materials, Direct Labor, and Overhead Variances, Journal Entries Algers Company produces dry fertilizer. At the beginning of the year, Algers had the following standard cost sheet: Direct materials (5 lbs. @ $2.60) $13.00 Direct labor (0.75 hr. @ $18.00) 13.50 Fixed overhead (0.75 hr. @ $4.00) 3.00 Variable overhead (0.75 hr. @ $3.00) 2.25 Standard cost per unit $31.75 Algers computes its overhead rates using practical volume, which is 54,000 units. The actual results for the year are as follows: a. Units produced: 53,000 b. Direct materials purchased: 275,000 pounds at $2.50 per pound c. Direct materials used: 270,200 pounds d. Direct labor: 40,100 hours at $17.95 per hour e. Fixed overhead: $161,700 f. Variable overhead: $122,100 Required: 1. Compute price and usage variances for direct materials. MPV 27,500 Favorable MUV 13,780 X Unfavorable 2. Compute the direct labor rate and labor efficiency variances. MUV $ 13,780 X Unfavorable 2. Compute the direct labor rate and labor efficiency variances. Labor Rate Variance $ 2,005 Favorable Labor Efficiency Variance $ 6,300 Unfavorable 3. Compute the fixed overhead spending and volume variances. Spending Variance 1,700 X Favorable Volume Variance 1,050 x Unfavorable 4. Compute the variable overhead spending and efficiency variances. Spending Variance $ 300 x Unfavorable Efficiency Variance $ 3,000 x Unfavorable 5. Prepare journal entries for the following: a. The purchase of direct materials b. The issuance of direct materials to production (Work in Process) c. The addition of direct labor to Work in Process d. The addition of overhead to Work in Process e. The incurrence of actual overhead costs If an amount box does not require an entry, leave it blank. a. Materials 712,400 X 0 Direct Materials Price Variance 0 27,400 x Accounts Payable 0 685,000 X b. Work in Process 689,000 0 Direct Materials Usage Variance 13,780 X 0 Materials 0 702,780 A c. Work in Process 715,500 0 Direct Labor Efficiency Variance 6,300 0 Direct Labor Rate Variance 0 2,005 Wages Payable 0 719,795 d. Work in Process 278,250 0 Variable Overhead Control 0 119,250 278,250 d. Work in Process 0 Variable Overhead Control 0 119,250 Fixed Overhead Control 159,000 e. Variable Overhead Control 122.000 x 0 Fixed Overhead Control 161,700 Various Accounts 0 283,700 X Feedback Check My Work f. Prepare journal entries for the closing out of variances to Cost of Goods Sold. If an amount box does not require an entry, leave it blank. First, close direct materials and direct labor variances: Direct Materials Price Variance 27,400 X 0 Direct Labor Rate Variance 2,005 0 Direct Materials Usage Variance > > > > 0 13,780 X Direct Labor Efficiency Variance 0 > > > 6,300 Cost of Goods Sold 9,325 x Fixed Overhead Volume Variance 3,000 0 1,700 X 0 Variable Overhead Spending Variance Variable Overhead Efficiency Variance 1,050 0 Fixed Overhead Spending Variance 0 300 Fixed Overhead Control 0 2,700 Variable Overhead Control 0 2,750 X Feedback Check My Work Third, close the overhead variances: wote: Close the variances with a debit balance first. For compound entries, if an amount box does not require an entry, leave it blank. Cost of Goods Sold 5,750 X Fixed Overhead Volume Variance 0 3,000 Variable Overhead Spending Variance 0 1,700 X Variable Overhead Efficiency Variance 0 1,050 Fixed Overhead Spending Variance 300 Cost of Goods Sold 300
