Direct Materials, Direct Labor, and Overhead Variances, Journal Entries

Rand Company produces dry fertilizer. At the beginning of the year, Rand had the following standard cost sheet:

Direct materials (8 lbs. @ $1.30)	$10.40
Direct labor (0.2 hr. @ $18.00)	3.60
Fixed overhead (0.2 @ $3.00)	0.60
Variable overhead (0.2 hr. @ $1.70)	0.34
Standard cost per unit	$14.94

Overhead rates are computed using practical volume, which is 50,000 units. The actual results for the year are as follows:

1. Units produced: 51,000
2. Direct materials purchased: 408,000 pounds at $1.32 per pound
3. Direct materials used: 406,800 pounds
4. Direct labor: 10,500 hours at $17.95 per hour
5. Fixed overhead: $30,680
6. Variable overhead: $18,000

Required:

Note: Enter all variances as positive amounts.

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1. Compute price and usage variances for direct materials.

MPV	$fill in the blank 0b94ddf50004050_1	FavorableUnfavorableUnfavorable
MUV	$fill in the blank 0b94ddf50004050_3	FavorableUnfavorableFavorable

2. Compute the direct labor rate and labor efficiency variances.

Labor Rate Variance	$fill in the blank 0b94ddf50004050_5	FavorableUnfavorableFavorable
Labor Efficiency Variance	$fill in the blank 0b94ddf50004050_7	FavorableUnfavorableUnfavorable

3. Compute the fixed overhead spending and volume variances.

Spending Variance	$fill in the blank 0b94ddf50004050_9	FavorableUnfavorableUnfavorable
Volume Variance	$fill in the blank 0b94ddf50004050_11	FavorableUnfavorableFavorable

4. Compute the variable overhead spending and efficiency variances.

Spending Variance	$fill in the blank 0b94ddf50004050_13	FavorableUnfavorableUnfavorable
Efficiency Variance	$fill in the blank 0b94ddf50004050_15	FavorableUnfavorableUnfavorable

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1. MPV (Materials price variance) = (AP SP) x AQ MUV (Materials usage variance) = (AQ SQ) x SP

2. LRV (Labor rate variance) = (AR SR) x AH LEV (Labor efficiency variance) = (AH SH) x SR

3. Fixed OH spending variance = AFOH - BFOH Volume variance = Budgeted fixed OH Applied fixed OH

4. Variable overhead spending variance = Actual variable overhead - (Variable overhead rate x Standard hours for actual production)

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5. Prepare journal entries for the following:

1. The purchase of direct materials
2. The issuance of direct materials to production (Work in Process)
3. The addition of direct labor to Work in Process
4. The addition of overhead to Work in Process
5. The incurrence of actual overhead costs

If an amount box does not require an entry, leave it blank.

a.	Accounts PayableDirect Labor Efficiency VarianceDirect Labor Rate VarianceDirect Materials Price VarianceMaterialsMaterials	Materials	Materials
	Direct Materials Price VarianceDirect Materials Usage VarianceFixed Overhead ControlMaterialsVarious AccountsDirect Materials Price Variance	Direct Materials Price Variance	Direct Materials Price Variance
	Accounts PayableDirect Labor Efficiency VarianceDirect Labor Rate VarianceDirect Materials Usage VarianceFixed Overhead ControlAccounts Payable	Accounts Payable	Accounts Payable
b.	MaterialsVariable Overhead ControlVarious AccountsWages PayableWork in ProcessWork in Process	Work in Process	Work in Process
	Direct Materials Price VarianceDirect Materials Usage VarianceFixed Overhead ControlMaterialsVarious AccountsDirect Materials Usage Variance	Direct Materials Usage Variance	Direct Materials Usage Variance
	Accounts PayableDirect Labor Efficiency VarianceDirect Labor Rate VarianceDirect Materials Price VarianceMaterialsMaterials	Materials	Materials
c.	MaterialsVariable Overhead ControlVarious AccountsWages PayableWork in ProcessWork in Process	Work in Process	Work in Process
	Direct Labor Efficiency VarianceDirect Labor Rate VarianceDirect Materials Price VarianceDirect Materials Usage VarianceFixed Overhead ControlDirect Labor Efficiency Variance	Direct Labor Efficiency Variance	Direct Labor Efficiency Variance
	Direct Labor Rate VarianceDirect Materials Price VarianceDirect Materials Usage VarianceFixed Overhead ControlMaterialsDirect Labor Rate Variance	Direct Labor Rate Variance	Direct Labor Rate Variance
	Fixed Overhead ControlMaterialsVariable Overhead ControlVarious AccountsWages PayableWages Payable	Wages Payable	Wages Payable
d.	Accounts PayableDirect Labor Efficiency VarianceDirect Labor Rate VarianceWages PayableWork in ProcessWork in Process	Work in Process	Work in Process
	Direct Materials Price VarianceDirect Materials Usage VarianceMaterialsVarious AccountsVariable Overhead ControlVariable Overhead Control	Variable Overhead Control	Variable Overhead Control
	Fixed Overhead ControlMaterialsVarious AccountsWages PayableWork in ProcessFixed Overhead Control	Fixed Overhead Control	Fixed Overhead Control
e.	MaterialsVariable Overhead ControlVarious AccountsWages PayableWork in ProcessVariable Overhead Control	Variable Overhead Control	Variable Overhead Control
	Fixed Overhead ControlMaterialsVarious AccountsWages PayableWork in ProcessFixed Overhead Control	Fixed Overhead Control	Fixed Overhead Control
	Accounts PayableDirect Labor Efficiency VarianceDirect Labor Rate VarianceMaterialsVarious AccountsVarious Accounts	Various Accounts	Various Accounts

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5. a. Material purchases are accounted for by debiting Materials and crediting Accounts Payable. Direct Materials Price Variance is debited or credited. b. Direct materials are applied to production by debiting Work in Process and crediting Materials. Direct Materials Usage Variance is debited or credited. c. Direct labor is applied to Work in Process by debiting that account and crediting Wages Payable. Direct Labor Efficiency Variance and Direct Labor Rate Variance are debited or credited. d. OH is applied to production by debiting Work in Process and crediting the variable and fixed OH Control accounts. e. The actual OH is accumulated on the debit side of the OH control accounts.

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f. Prepare journal entries for the closing out of variances to Cost of Goods Sold. Post amounts from highest to lowest. If an amount box does not require an entry, leave it blank.

First, close direct materials and direct labor variances:

blank	Cost of Goods SoldDirect Labor Rate VarianceDirect Materials Price VarianceVariable Overhead ControlVariable Overhead Spending VarianceCost of Goods Sold	Cost of Goods Sold	Cost of Goods Sold
	Direct Labor Rate VarianceDirect Materials Price VarianceDirect Materials Usage VarianceVariable Overhead ControlVariable Overhead Spending VarianceDirect Materials Usage Variance	Direct Materials Usage Variance	Direct Materials Usage Variance
	Cost of Goods SoldDirect Labor Efficiency VarianceDirect Labor Rate VarianceDirect Materials Usage VarianceDirect Labor Rate Variance	Direct Labor Rate Variance	Direct Labor Rate Variance
	Cost of Goods SoldDirect Labor Efficiency VarianceDirect Materials Price VarianceDirect Materials Usage VarianceDirect Labor Efficiency Variance	Direct Labor Efficiency Variance	Direct Labor Efficiency Variance
	Direct Labor Efficiency VarianceDirect Labor Rate VarianceDirect Materials Price VarianceVariable Overhead ControlVariable Overhead Spending VarianceDirect Materials Price Variance	Direct Materials Price Variance	Direct Materials Price Variance

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5. f. The variances are closed to Cost of Goods Sold. Then FOH and VOH are recognized. Last, the Control variances are closed to COGS.

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Second, recognize the overhead variances: Post amounts from highest to lowest. If an amount box does not require an entry, leave it blank.

blank	Cost of Goods SoldFixed Overhead Spending VarianceVariable Overhead ControlVariable Overhead Efficiency VarianceVariable Overhead Spending VarianceVariable Overhead Control	Variable Overhead Control	Variable Overhead Control
	Cost of Goods SoldFixed Overhead ControlVariable Overhead ControlVariable Overhead Efficiency VarianceWork in ProcessFixed Overhead Control	Fixed Overhead Control	Fixed Overhead Control
	Cost of Goods SoldFixed Overhead ControlFixed Overhead Volume VarianceVariable Overhead Spending VarianceFixed Overhead Volume Variance	Fixed Overhead Volume Variance	Fixed Overhead Volume Variance
	Cost of Goods SoldFixed Overhead ControlVariable Overhead ControlWork in Process	- Select -	- Select -
	Cost of Goods SoldFixed Overhead Volume VarianceVariable Overhead Spending VarianceVariable Overhead Volume VarianceVariable Overhead ControlVariable Overhead Volume Variance	Variable Overhead Volume Variance	Variable Overhead Volume Variance
	Cost of Goods SoldFixed Overhead ControlFixed Overhead Efficiency VarianceVariable Overhead Spending VarianceWork in ProcessVariable Overhead Spending Variance	Variable Overhead Spending Variance	Variable Overhead Spending Variance

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Partially correct

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Third, close the overhead variances: Post amounts from highest to lowest. Combine all amounts to COGS and post as a single amount. If an amount box does not require an entry, leave it blank.

blank	Cost of Goods SoldFixed Overhead ControlVariable Overhead ControlVariable Overhead Efficiency VarianceWork in ProcessFixed Overhead Control	Fixed Overhead Control	Fixed Overhead Control
	Cost of Goods SoldFixed Overhead Volume VarianceFixed Overhead ControlVariable Overhead Spending VarianceWork in ProcessVariable Overhead Spending Variance	Variable Overhead Spending Variance	Variable Overhead Spending Variance
	Cost of Goods SoldFixed Overhead ControlFixed Overhead Spending VarianceVariable Overhead Efficiency VarianceVariable Overhead Spending VarianceVariable Overhead Efficiency Variance	Variable Overhead Efficiency Variance	Variable Overhead Efficiency Variance
	Cost of Goods SoldFixed Overhead ControlFixed Overhead Spending VarianceFixed Overhead Spending VarianceVariable Overhead Efficiency VarianceCost of Goods Sold	Cost of Goods Sold	Cost of Goods Sold
	Cost of Goods SoldFixed Overhead Efficiency VarianceFixed Overhead Spending VarianceVariable Overhead ControlVariable Overhead Spending VarianceFixed Overhead Spending Variance	Fixed Overhead Spending Variance	Fixed Overhead Spending Variance