Question

Hart Company made 3,300 bookshelves using 22,300 board feet of wood costing $303,280. The company's direct materials standards for one bookshelf are 8 board feet of wood at $13.50 per board foot.

AQ = Actual Quantity
SQ = Standard Quantity
AP = Actual Price
SP = Standard Price

(1) Compute the direct materials price and quantity variances and classify each as favorable or unfavorable.
(2) Hart applies management by exception by investigating direct materials variances of more than 5% of actual direct materials costs. Which direct materials variances will Hart investigate further?
(3) Prepare the journal entry to charge direct materials costs to Work in Process Inventory and record the materials variances.
(4) Assume that Hart's materials variances are the only variances accumulated in the accounting period and that they are immaterial. Prepare the adjusting journal entry to close the variance accounts at period-end.

Answer 1

1)  The direct materials price and quantity variances and classify each as favorable or unfavorable:

Direct material price variance = ( AP - SP) * AQ

= ( $13.6 - $13.50) * 340,000

= $34,000 unfavorable

Direct material quantity variance = ( AQ - SQ) * SP

= ( 22,300 - (3,300 * 8) ) *$13.50

= $55,350 Favorable

Working:

Actual price = $303,280 / 22,300 = $13.6

b) Hart applies management by exception by investigating direct materials variances of more than 5% of actual direct materials costs. Which direct materials variances will Hart investigate further?

Direct material Quantity variance.

Reason: As the Direct Material Quantity variance was more than 5%of the actual direct material cost.

Direct material price variance	$34,000 / $303,280	11.21%
Direct material Quantity variance	$55,350 / $303,280	18.25%

3) Prepare the journal entry to charge direct materials costs to Work in Process Inventory and record the materials variances.

Journal Entries -Hart Company

1	Particulars	Debit	Credit
	Work in progress Inventory (8*3,300*$13.50)	$356,400
	Direct Material price variance	$34,000
	Direct Material Quantity variance		$55,350
	Raw Materials Inventory		$335,050
	( to record purchase and use of material)

4) Assume that Hart's materials variances are the only variances accumulated in the accounting period and that they are immaterial. Prepare the adjusting journal entry to close the variance accounts at period-end.

	Particular	Debit	Credit
	Direct material quantity variance	$55,350
	To Direct material price variance		$34,000
	To cost of goods sold		$21,350
	( To record closing of price and quantity variances to the cost of goods sold)