Grainger Company has established the following standard variable costs for a unit of finished product:

Direct materials: 2.0 lbs. @ $4.00 per lb. $ 8.00

Direct labor: 1.5 hrs. @ $14.00 per hr. 21.00

Variable overhead: 1.5 hrs. @ $20 per hr. 30.00

The following occurred during the year:

Actual production: 32,000 completed units.

Direct materials purchased: 70,000 lbs. at $3.82 per lb.

Direct materials requisitioned into production; 66,000 lbs.

Actual direct labor cost incurred: 51,000 hrs. at $12.60 per hr.

The journal entry to record direct labor under a standard cost system includes:

	a.	A debit to Labor Rate Variance of $71,400.
	b.	A credit to Labor Rate Variance of $71,400.
	c.	A debit to Work in Progress of $672,000.
	d.	Both b and c.

The journal entry to record the use of materials in production under a standard cost system is:

	a.	Work in Progress 280,000 Materials Price Variance 12,600 Accounts Payable 267,400
	b.	Work in Progress 256,000 Materials Quantity Variance 8,000 Materials 264,000
	c.	Work in Progress 256,000 Materials 256,000
	d.	Work in Progress 267,400 Materials 267,400

The journal entry to record the purchase of materials under a standard cost system is:

	a.	Materials 267,400 Accounts Payable 267,400
	b.	Materials 280,000 Materials Price Variance 12,600 Accounts Payable 267,400
	c.	Materials 267,400 Materials Price Variance 12,600 Accounts Payable 280,000
	d.	Materials 280,000 Accounts Payable 280,000

The purchase of poor quality materials may cause a favorable materials price variance and an unfavorable labor

efficiency variance due to the extra effort required to work with inferior materials in the production process.

True

False

Within the relevant range, fixed cost per unit remains constant as the production level changes; the amount of variable

cost per unit changes with the production level.

True

False

Although budgeting is often perceived as a mechanical number-crunching task for accountants, it is an important

management tool that most (if not all) successful businesses utilize to a great extent to facilitate planning and control

functions.

True

False