Question

In reviewing activity for July, the controller of Mathis, Inc., collected the following data concerning direct materials. Actual production 103,000 units Direct materials purchased (actual) $ 1,642,800 Standard cost of materials purchased 1,554,000 Standard direct materials costs per unit produced 14 Standard price times actual amount of materials used 1,405,950 Assume that Mathis Company had no beginning finished goods inventory and only produced one product. Mathis sold 90,640 units during the period. Required: a. Assume Mathis writes off all variances to Cost of Goods Sold. Prepare the entries Mathis would make to record and close out the variances. b. Assume Mathis prorates all variances to the appropriate accounts. Prepare the entries Mathis would make to record and close out the variances.

Answer 1

Answer:

a.	Event	General Journal	Debit	Credit
	1	Work in process inventory (103000 x $14)	1442000
		Direct materials efficiency variance		36050
		Raw materials inventory		1405950
		(To record the standard cost of materials used)
	2	Raw materials inventory	1554000
		Direct materials price variance	88800
		Accounts payable		1642800
		(To record the cost of direct materials purchased)
	3	Cost of goods sold	52750
		Direct materials efficiency variance	36050
		Direct materials price variance		88800
		(To record the closure of direct material cost variances)
b.	Event	General Journal	Debit	Credit
	1	Work in process inventory (103000 x $14)	1442000
		Direct materials efficiency variance		36050
		Raw materials inventory		1405950
		(To record the standard cost of materials used)
	2	Raw materials inventory	1554000
		Direct materials price variance	88800
		Accounts payable		1642800
		(To record the cost of direct materials purchased)
	3	Cost of goods sold	46420
		Finished goods inventory	6330
		Direct materials efficiency variance	36050
		Direct materials price variance		88800
		(To record the closure of direct material cost variances)

Working:

Amount to be allocated = $88800 - $36050 = $52750

	Total Value $	Percent of total	Allocation $
Cost of goods sold (90640 x $14)	1268960	88%	46420
Finished goods inventory [(103000 - 90640) x $14]	173040	12%	6330
Total	1442000	100%	52750