Exercise 17-21 (Algo) Prorating Direct Labor Cost Variances (LO 17-1) Post Parts manufactures components used in audio and video systems. The year just ended was Post's first year of operations and they are preparing financial statements. The immediate issue facing Post is the treatment of the direct labor costs. Post set a standard at the beginning of the year that allowed 0.25 hours of direct labor for each unit of output. The standard rate for direct labor is $78 per hour. During the year, the company produced 286,000 units. A count of the ending finished goods inventory showed 17,160 units remaining in the warehouse. There are never any work-in-process inventories at Post. Post used 70,210 hours of labor. Total direct labor costs for the year amounted to $5,620,650.

Required: a. and b. What was the direct labor price variance and the direct labor efficiency variance for the year? c. Assume Post writes off all variances to Cost of Goods Sold. Prepare the entries Cook would make to record and close out the variances. d. Assume Post prorates all variances to the appropriate accounts. Prepare the entries Post would make to record and close out the variances.

What was the direct labor price variance and the direct labor efficiency variance for the year?

Note: Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.

Direct labor price variance
Direct labor efficiency variance

Record the purchase and use of 70,210 hours of direct labor at an actual cost of $5,620,650 and the transfer to work in process at a standard cost of $78 per hour.

Note: Enter debits before credits.

Event	General Journal	Debit	Credit
1

Record the closure of direct labor cost variances to Cost of Goods Sold.

Note: Enter debits before credits.

Event	General Journal	Debit	Credit
2

Record the purchase and use of 70,210 hours of direct labor at an actual cost of $5,620,650 and the transfer to work in process at a standard cost of $78 per hour.

Note: Enter debits before credits.

Event	General Journal	Debit	Credit
1

Record the closure of direct labor cost variances.

Note: Enter debits before credits.

Event	General Journal	Debit	Credit
2