Financial & Managerial Accounting
Financial & Managerial Accounting
17th Edition
ISBN: 9780078025778
Author: Jan Williams, Susan Haka, Mark S Bettner, Joseph V Carcello
Publisher: McGraw-Hill Education
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Chapter 24, Problem 4BP

a.

To determine

Compute the materials price and quantity variances.

a.

Expert Solution
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Explanation of Solution

Variance:

Variance refers to the difference level in the actual cost incurred and standard cost. The total cost variance is subdivided into separate cost variances; this cost variance indicates that the amount of variance that is attributable to specific casual factors.

Compute the materials price variances.

Material price variance = Actual  quantity used ×(Standard priceActual price)=170,000lbs.×($5.00/lb.$4.80lb. (1))=170,000lbs.×$0.20/lb.=$34,000(Favorable)

Compute the materials quantity variances.

Material quantity variance = Standard price×[Standard quantity Actual Quantity]=$5.00/lb[164,000 lbs. (2)170,000 lbs.]=$30,000(Favorable)

Therefore, the materials price and quantity variances of Enterprise H are $34,000 and $30,000.

Working Notes:

Calculate the actual price per pound:

Actual price per pound=Direct material cost Pounds of direct materials used=$816,000170,000=$4.80/lbs.

(1)

Calculate the standard quantity allowed:

Standard quantity allowed =Batches produced ×(Standard quantity allowed per batch)=160×1,025=164,000

(2)

b.

To determine

Compute the labor rate and efficiency variances.

b.

Expert Solution
Check Mark

Explanation of Solution

Compute the labor rate variances.

Labor rate variance = Actual hours ×(Standard hourly rate - Actual hourly rate)=2,500 hours ×($8.25/hour$8.00/hour (3))=2,500 hours ×$0.25/ hour=$625 (Favorable)

Compute the labor efficiency variances.

Labor efficiency variance = Standard hourly rate ×(Standard hours - Actual hours)= $8.25/hour×(2,400hours (4)2,500 hours)=$8.25/hour×100hours=$825 (Unfavorable)

Therefore, the labor rate and efficiency variances of Enterprise H are $625 and ($825).

Working Notes:

Calculate the actual rate per hour:

Actual rate per hour =Direct labor cost Hours worked by employees=$20,0002,500 hours=$ 8.00/ hour

(3)

Calculate the standard hours allowed:

Standard hours allowed =Batches produced ×(Standard hours allowed per batch)=160×15=2,400hours

(4)

c.

To determine

Compute the manufacturing overhead spending and volume variances.

c.

Expert Solution
Check Mark

Explanation of Solution

Compute the manufacturing overhead spending variances.

ParticularsAmount in $Amount in $
Standard Overhead cost incurred:  
     Fixed3,300 
     Variable (5)1,600 
  4,900
Actual Overhead cost incurred:  
     Fixed3,100 
     Variable1,100 
  4,200
Overhead spending variance (favorable) 700

(Table 1)

Compute the manufacturing overhead volume variances.

ParticularsAmount
Overhead applied at standard cost ($32 × 160batches) $ 5,120
Less: Standard overhead cost allowed$4,900
Volume variance (favorable) $ 220

(Table 2)

Therefore, the manufacturing overhead spending and volume variances of Enterprise H are $700 and $220.

Working note:

Calculate the standard variable overhead allowed:

Standard variable overhead allowed=(Variable overehead appplication rate) ×Batches produced=$10×160=$1,600

(5)

d.

To determine

Prepare journal entry to record to charge materials (at standard) to Work in Process.

d.

Expert Solution
Check Mark

Explanation of Solution

Prepare journal entry to record to charge materials (at standard) to Work in Process.

DateAccounts title and explanation

Debit

($)

Credit

($)

 Work in process inventory ( at Standard) (6)820,000 
 Materials quantity variance (favorable)30,000 
      Materials price variance (favorable) 34,000
      Direct materials inventory (Actual) 816,000
 (To record the cost of direct materials charged to  production)  

(Table 3)

  • Work in process inventory is an asset and there is an increase in the value of an asset. Hence, debit the work in process inventory by $820,000.
  • Materials quantity variance is an asset and there is a decrease in the value of an asset. Hence, credit the materials quantity variance by $30,000.
  • Materials price variance is an asset and there is a decrease in the value of an asset. Hence, credit the materials price variance by $34,000.
  • Direct materials inventory is an asset and there is a decrease in the value of an asset. Hence, credit the direct materials inventory by $816,000

Working notes:

Calculate the work in process inventory for direct materials:

Work in process inventory for direct materials }=160 Actual Batches×(Standard quantity allowed per batch ×Standard price of direct materials )=160×(1,025×$5.00)=160×$5,125=$820,000

(6)

e.

To determine

Prepare journal entry to record to charge direct labor (at standard) to Work in Process.

e.

Expert Solution
Check Mark

Explanation of Solution

Prepare journal entry to record to charge direct labor (at standard) to Work in Process.

DateAccounts title and explanation

Debit

($)

Credit

($)

 Work in process inventory ( at Standard) (7)19,800 
 Labor efficiency variance (Unfavorable)825 
      Labor rate variance(Favorable) 625
      Direct Labor (Actual) 20,000
 (To record the cost of direct labor charged to production.)  

(Table 4)

  • Work in process inventory is an asset and there is an increase in the value of an asset. Hence, debit the work in process inventory by $19,800.
  • Labor efficiency variance is an asset and there is an increase in the value of an asset. Hence, debit the labor efficiency variance by $825.
  • Labor rate variance is an asset and there is a decrease in the value of an asset. Hence, credit the labor rate variance by $625.
  • Direct labor is an asset and there is a decrease in the value of an asset. Hence, credit the direct labor by $20,000.

Working notes:

Calculate the work in process inventory for direct labor cost:

Work in process inventory for direct labor cost }=160 Batches×(Standard hours allowed per batch ×Standard rate of direct labor )=160×(15×$8.25 per hour)=160×$123.75=$19,800

(7)

f.

To determine

Prepare journal entry to record to charge manufacturing overhead (at standard) to Work in Process.

f.

Expert Solution
Check Mark

Explanation of Solution

Prepare journal entry to record to charge manufacturing overhead (at standard) to Work in Process.

DateAccounts title and explanation

Debit

($)

Credit

($)

 Work in process inventory ( at Standard)5,120 
      Overhead  spending variance 700
      Overhead volume variance 220
      Manufacturing Overhead (Actual) 4,200
 (To apply overhead to production.)  

(Table 5)

  • Work in process inventory is an asset and there is an increase in the value of an asset. Hence, debit the work in process inventory by $5,120.
  • Overhead spending variance (Expense) is a component of stockholder’s equity and there is an increase in the value of expense. Hence, debit the overhead spending variance by $700.
  • Overhead volume variance (Expense) is a component of stockholder’s equity and there is a decrease in the value of expense. Hence, credit the overhead volume variance by $220.
  • Manufacturing overhead (Expense) is a component of stockholder’s equity and there is a decrease in the value of expense. Hence, credit the manufacturing expense by $4,200.

g.

To determine

Prepare journal entry to record the transfer of 160 batches of puppy meal produced in June to Finished Goods.

g.

Expert Solution
Check Mark

Explanation of Solution

Prepare journal entry to record the transfer of 160 batches of puppy meal produced in June to Finished Goods

DateAccounts title and explanation

Debit

($)

Credit

($)

 Finished goods inventory (at standard cost)844,920 
 

     Work in process inventory (at standard            

      cost) (8)

 844,920
 (To transfer 160 batches of puppy meal to finished goods in April.)  

(Table 6)

  • Finished goods inventory is an asset and there is an increase in the value of an asset. Hence, debit the finished goods inventory by $844,920.
  • Work in process inventory is an asset and there is a decrease in the value of an asset. Hence, credit the work in process inventory by $844,920.

Working Notes:

Calculate the work in process inventory at standard cost:

Work in process inventory at standard cost=(Total direct materials + direct labor + manufacturing overhead charged)=$820,000+$19,800+$5,120=$844,920

(8)

h.

To determine

Prepare journal entry to record to close any over- or underapplied overhead to Cost of Goods Sold.

h.

Expert Solution
Check Mark

Explanation of Solution

Prepare journal entry to record to close any over- or underapplied overhead to Cost of Goods Sold.

DateAccounts title and explanation

Debit

($)

Credit

($)

 Overhead  spending variance (favorable)700 
 Overhead volume variance (favorable)220 
      Cost of goods sold 920
 (To close overhead variances to cost of goods sold.)  

(Table 7)

  • Overhead spending variance (Expense) is a component of stockholder’s equity and there is an increase in the value of expense. Hence, debit the overhead spending variance by $700.
  • Overhead volume variance (Expense) is a component of stockholder’s equity and there is an increase in the value of expense. Hence, debit the overhead volume variance by $220.
  • Cost of goods sold (expense) is component of stockholder’s equity and there is a decrease in the value of expense. Hence, credit the cost of goods sold by $920.

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Chapter 24 Solutions

Financial & Managerial Accounting

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