eBook Print Item 2.25 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) 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: 270,400 pounds d. Direct labor: 40,100 hours at $17.95 per hour e. Fixed overhead: $161,700 f. Variable overhead: $122,000 Required: 1. Compute price and usage variances for direct materials. MPV $ 27,300 Favorable MUV 20,800 x Unfavorable 2. Compute the direct labor rate and labor efficiency variances. Labor Rate Variance 2,005 Favorable An 1. Compute price and usage variances for direct materials. MPV $ 27,300 Favorable MUV 20,800 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 300 Favorable Volume Variance 3,000 Unfavorable 4. Compute the variable overhead spending and efficiency variances. Spending Variance 1,700 Unfavorable Efficiency Variance 1,050 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. Materials 709,800 Direct Materials Price Variance 27.300 Accounts Payable 682,500 a. 682,500 x b. Work in Process Direct Materials Usage Variance Materials 20,800 x 703,300 x 715,500 6,300 Work in Process Direct Labor Efficiency Variance Direct Labor Rate Variance Wages Payable 2,005 719,795 278,250 d. Work in Process Variable Overhead Control 119,250 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 27,300 Direct Labor Rate Variance Direct Materials Usage Variance 20,800 X Direct Labor Efficiency Variance Cost of Goods Sold 2,205 X 2,005 6.300 Check My Wor 5.1. 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 300 x 1,700 Second, recognize the overhead variances: If an amount box does not require an entry, leave it blank Fixed Overhead Volume Variance Variable Overhead Spending Variance Variable Overhead Efficiency Variance Fixed Overhead Spending Variance Fixed Overhead Control Variable Overhead Control 1.050 300 2,700 2.750
