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 Third, close the overhead variances: Note: Close the variances with a debit balance first. For compound entries, if an amount box does not require an entry, leave it blank. Cost of Goods Sold Fixed Overhead Volume Variance Variable Overhead Spending Variance Variable Overhead Efficiency Variance Fixed Overhead Spending Variance Cost of Goods Sold 13.50 3.00 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. @ $2.50) $13.00 Direct labor (0.75 hr. @ $18.00) Fixed overhead (0.75 hr @ $4.00) Variable overhead (0.75 hr. @ $3.00) Standard cost per unit 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: 275,000 pounds at $2.50 per pound c. Direct materials used: 270,300 pounds d. Direct labor: 40,100 hours at $17.95 per hour e. Fixed overhead: $161,800 f. Variable overhead: $122,100 Required: $31.75 1. Compute price and usage variances for direct materials. 27,500 Favorable 13,780 Unfavorable MPV MUV $ 2. Compute the direct labor rate and labor efficiency variances. Labor Rate Variance 2,005 Favorable Labor Efficiency Variance S 6,300 Unfavorable 3. Compute the fixed overhead spending and volume variances. Spending Variance 200 Favorable Volume Variance 3,000 Unfavorable 4. Compute the variable overhead spending and efficiency variances. 1,800 Unfavorable Spending Variance 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. 715,000 a. Materials Direct Materials Price Variance Accounts Payable 27,500 687,500 b. Work in Process Direct Materials Usage Variance Materials III II 715,000 715,500 6,300 c. Work in Process Direct Labor Efficiency Variance Direct Labor Rate Variance Wages Payable 2,005 719,795 d. Work in Process Variable Overhead Control Fixed Overhead Control e. Variable Overhead Control Fixed Overhead Control Various Accounts 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 Direct Labor Rate Variance Direct Labor Rate Variance Direct Labor Efficiency Variance Cost of Goods Sold
