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: 273,000 pounds at $2.50 per pound c. Direct materials used: 270,300 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 $ Favorable MUV Unfavorable X 2. Compute the direct labor rate and labor efficiency variances. Labor Rate Variance Favorable Labor Efficiency Variance Unfavorable X 3. Compute the fixed overhead spending and volume variances. Spending Variance $ X Favorable Volume Variance $ Unfavorable X 4. Compute the variable overhead spending and efficiency variances. Spending Variance Unfavorable x Efficiency Variance Unfavorable X 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. Materials X a. x Direct Materials Price Variance X Accounts Payable b. Variable Overhead Control x Direct Materials Usage Variance x Direct Labor Efficiency Variance x Variable Overhead Control x C. Direct Labor Efficiency Variance Direct Labor Rate Variance Materials x Direct Labor Efficiency Variance x d. Direct Materials Usage Variance x X Fixed Overhead Control X Variable Overhead Control x e. Fixed Overhead Control > Direct Labor Efficiency Variance x 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 Labor Efficiency Variance x Direct Labor Efficiency Variance x Direct Materials Price Variance x xx Direct Labor Efficiency Variance Cost of Goods Sold Second, recognize the overhead variances: If an amount box does not require an entry, leave it blank. Fixed Overhead Control x Fixed Overhead Control x Fixed Overhead Control x Fixed Overhead Spending Variance x Fixed Overhead Control x Fixed Overhead Volume Variance x Third, close the overhead variances: Note: 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 Fixed Overhead Control x Fixed Overhead Control x Fixed Overhead Control x Fixed Overhead Spending Variance x Cost of Goods Sold
