Question

n reviewing activity for July, the controller of Mathis, Inc., collected the following data concerning direct materials.

Actual production		116,000	units
Direct materials purchased (actual)	$	1,954,800
Standard cost of materials purchased		1,580,000
Standard direct materials costs per unit produced		14
Standard price times actual amount of materials used		1,431,950

Assume that Mathis Company had no beginning finished goods inventory and only produced one product. Mathis sold 102,080 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

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Mathis, Inc.,	Finished Units	Rate per unit	Amount	Note
Workings
Direct Material Variance
Standard Price allowed for Actual Output at Standard Price	116,000.00	14.00	1,624,000.00	A
Actual Quantity of Input used at Standard Price			1,431,950.00	B 1
Quantity Variance (B 1-A)			(192,050.00)	Favorable
Actual Quantity of materials purchased at Standard Price			1,580,000.00	B 2
Actual cost of materials			1,954,800.00	C
Price Variance (C-B 2)			374,800.00	Unfavorable
Total Material Variance			182,750.00	Unfavorable

Answer a	Journal Entry
Account	Debit $	Credit $
Cost of goods	182,750.00
Direct materials		182,750.00

Workings for answer b		Note
Total Material Variance	182,750.00	A
Actual production	116,000.00	B
Material Variance per unit	1.58	C=A/B
Units sold	102,080.00	D
Material Variance to be transferred to cost of good sold	160,820.00	E=D*C
Ending inventory	13,920.00	F=B-D
Material Variance to be transferred to Finished goods inventory	21,930.00	G=F*C

Answer b	Journal Entry
Account	Debit $	Credit $
Cost of goods	160,820.00
Finished goods inventory	21,930.00
Direct materials		182,750.00