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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

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. @ $1.35) $10.80
Direct labor (0.15 hr. @ $18.00) 2.70
Fixed overhead (0.20 hr. @ $3.00) 0.60
Variable overhead (0.20 hr. @ $1.70) 0.34
Standard cost per unit $14.44

Overhead rates are computed using practical volume, which is 49,000 units. The actual results for the year are as follows:

  1. Units produced: 53,000
  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: $36,570
  6. Variable overhead: $18,000

Required:

1. Compute price and usage variances for direct materials.

MPV $fill in the blank 16a5790d806c046_1

FavorableUnfavorableUnfavorable

MUV $fill in the blank 16a5790d806c046_3

FavorableUnfavorableFavorable

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

Labor Rate Variance $fill in the blank 16a5790d806c046_5

FavorableUnfavorableFavorable

Labor Efficiency Variance $fill in the blank 16a5790d806c046_7

FavorableUnfavorableUnfavorable

3. Compute the fixed overhead spending and volume variances.

Spending Variance $fill in the blank 16a5790d806c046_9

FavorableUnfavorableUnfavorable

Volume Variance $fill in the blank 16a5790d806c046_11

FavorableUnfavorableFavorable

4. Compute the variable overhead spending and efficiency variances.

Spending Variance $fill in the blank 16a5790d806c046_13

FavorableUnfavorableUnfavorable

Efficiency Variance $fill in the blank 16a5790d806c046_15

FavorableUnfavorableUnfavorable

Feedback

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

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

Feedback

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.

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:

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

Direct Labor Efficiency VarianceDirect Labor Rate VarianceDirect Materials Price VarianceVariable Overhead ControlVariable Overhead Spending VarianceDirect Labor Efficiency Variance

Direct Labor Efficiency Variance Direct Labor Efficiency Variance

Cost of Goods SoldDirect Labor Efficiency VarianceDirect Materials Price VarianceDirect Materials Usage VarianceDirect Materials Price Variance

Direct Materials Price Variance Direct Materials Price Variance

Feedback

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.

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

Cost of Goods SoldFixed Overhead Volume VarianceVariable Overhead ControlVariable Overhead Efficiency VarianceVariable Overhead Spending VarianceVariable Overhead Control

Variable Overhead Control Variable Overhead Control

Cost of Goods SoldFixed Overhead ControlVariable Overhead ControlFixed Overhead Spending VarianceWork in ProcessFixed Overhead Spending Variance

Fixed Overhead Spending Variance Fixed Overhead Spending Variance

Cost of Goods SoldFixed Overhead ControlFixed Overhead Volume VarianceVariable Overhead Efficiency VarianceVariable Overhead Spending VarianceFixed Overhead Control

Fixed Overhead Control Fixed Overhead Control

Cost of Goods SoldFixed Overhead ControlFixed Overhead Volume VarianceVariable Overhead ControlWork in ProcessFixed Overhead Volume Variance

Fixed Overhead Volume Variance Fixed Overhead Volume Variance

Cost of Goods SoldFixed Overhead Spending VarianceFixed Overhead Volume VarianceVariable Overhead Efficiency VarianceVariable Overhead Spending VarianceVariable Overhead Efficiency Variance

Variable Overhead Efficiency Variance Variable Overhead Efficiency Variance

Cost of Goods SoldFixed Overhead ControlVariable Overhead ControlVariable Overhead Spending VarianceWork in ProcessVariable Overhead Spending Variance

Variable Overhead Spending Variance Variable Overhead Spending Variance

Feedback

Partially correct

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

Cost of Goods SoldFixed Overhead ControlFixed Overhead Volume VarianceVariable Overhead ControlWork in ProcessFixed Overhead Volume Variance

Fixed Overhead Volume Variance Fixed Overhead Volume Variance

Cost of Goods SoldFixed Overhead ControlVariable Overhead ControlVariable Overhead Efficiency VarianceWork in ProcessVariable Overhead Efficiency Variance

Variable Overhead Efficiency Variance Variable Overhead Efficiency Variance

Cost of Goods SoldFixed Overhead ControlVariable Overhead ControlVariable Overhead Spending VarianceWork in ProcessVariable Overhead Spending Variance

Variable Overhead Spending Variance Variable Overhead Spending Variance

Cost of Goods SoldFixed Overhead Spending VarianceFixed Overhead Volume VarianceVariable Overhead Efficiency VarianceVariable Overhead Spending VarianceCost of Goods Sold

Cost of Goods Sold Cost of Goods Sold

Cost of Goods SoldFixed Overhead Spending VarianceFixed Overhead Volume VarianceVariable Overhead Efficiency VarianceVariable Overhead Spending VarianceFixed Overhead Spending Variance

Fixed Overhead Spending Variance Fixed Overhead Spending Variance

Feedback

Correct

Feedback

Partially correct

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