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 $(5$ lbs$.$ @ $$2\mathrm{.}60)$ $$13\mathrm{.}00$

Direct labor $(0\mathrm{.}75$ hr$.$ @ $$18\mathrm{.}00)13\mathrm{.}50$

Fixed overhead $(0\mathrm{.}75$ hr$.$ @ $$4\mathrm{.}00)3\mathrm{.}00$

Variable overhead $(0\mathrm{.}75$ hr$.$ @ $$3\mathrm{.}00)2\mathrm{.}25$

Standard cost per unit $$31\mathrm{.}75$

Overhead rates are computed using practical volume, which is $54,000$ units. The actual results for the year are as follows:

Units produced: $53,000$

Direct materials purchased: $265,000$ pounds @ $$2\mathrm{.}50$ per pound

Direct materials used: $270,200$ pounds

Direct labor: $40,100$ hours at $$17\mathrm{.}95$ per hour

Fixed overhead: $$161,800$

Variable overhead: $$122,100$

Required:

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$1.$ Compute price and usage variances for direct materials.

MPV $fill in the blank f$8$de$83023$f$97028\_1$

$-26,500$

Favorable

MUV $fill in the blank f$8$de$83023$f$97028\_3$

$13,520$

Unfavorable

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

Labor Rate Variance $fill in the blank f$8$de$83023$f$97028\_5$

$-2,005$

Favorable

Labor Efficiency Variance $fill in the blank f$8$de$83023$f$97028\_7$

$6,300$

Unfavorable

$3.$ Compute the fixed overhead spending and volume variances.

Spending Variance $fill in the blank f$8$de$83023$f$97028\_9$

$-200$

Favorable

Volume Variance $fill in the blank f$8$de$83023$f$97028\_11$

$3,000$

Unfavorable

$4.$ Compute the variable overhead spending and efficiency variances.

Spending Variance $fill in the blank f$8$de$83023$f$97028\_13$

$1,800$

Unfavorable

Efficiency Variance $fill in the blank f$8$de$83023$f$97028\_15$

$1,050$

Unfavorable

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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 OH rate $($AVOR$)($SVOR$)$ Standard variable OH rate$)$ x AH

Variable overhead efficiency variance $=($AH $$ SH$)$ x SVOR

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$5.$ Prepare journal entries for the following:

The purchase of direct materials

The issuance of direct materials to production $($Work in Process$)$

The addition of direct labor to Work in Process

The addition of overhead to Work in Process

The incurrence of actual overhead costs

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

a$.$

Materials

$689,000$

Direct Materials Price Variance

$26,500$

Accounts Payable

$662,500$

b$.$

Work in Process

$689,000$

Direct Materials Usage Variance

$13,520$

Materials

$702,520$

c$.$

Work in Process

Direct Labor Efficiency Variance

$6,300$

Direct Labor Rate Variance

$2,005$

Wages Payable

d$.$

Work in Process

Variable Overhead Control

Fixed Overhead Control

e$.$

Variable Overhead Control

Fixed Overhead Control

Various Accounts

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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:

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$5.$ f$.$ The OH variances are disposed of by closing them to Cost of Goods Sold if they are not material or by prorating them among Work in Process, Finished Goods, and Cost of Goods Sold if they are material.

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Second, recognize the overhead variances:

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Third, close the overhead variances:

Note: Close the variances with a debit balance first.

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