Question

Deporte Company produces single-colored t-shirts. Materials for the shirts are dyed in large vats. After dying the materials for a given color, the vats must be cleaned and prepared for the next batch of materials to be colored. The following standards for changeover for a given batch have been established:

1	Direct materials (2.6 lbs. @ $0.95)	$2.47
2	Direct labor (0.60 hr. @ $7.2)	4.32
3	Standard prime cost	$6.79

During the year, 76,950 pounds of material were purchased and used for the changeover activity. There were 27,000 batches produced, with the following actual prime costs:

Direct materials	$60,979
Direct labor (for 16,155 hrs.)	$114,341

	Required:
1.	Prepare a journal entry on Dec. 31 for the purchase of raw materials. Record the transaction as a compound entry.
2.	Prepare a journal entry on Dec. 31 for the issuance of raw materials. Record the transaction as a compound entry.
3.	Prepare a journal entry on Dec. 31 for the addition of labor to Work in Process. Record the transaction as a compound entry.
4.	Prepare a journal entry on Dec. 31 for the closing of variances to Cost of Goods Sold. Record the transaction as a compound entry.

Answer 1

In the books of Deporte Company

Journal Entry

Sr. No.	Date	Description	Debit($)	Credit($)
1.	Dec. 31	Material a/c     To Accounts Payable (being purchase of raw materials)	73,102.5	73,102.5
2.	Dec. 31	Work In Progress a/c     To Material a/c (being material issued to production)	60,979	60,979
3.	Dec. 31	Work In Progress a/c     To Direct Wages a/c (being direct labor cost incurred)	114,341	114,341
4.	Dec. 31	Cost of Goods sold a/c      To Overhead Control a/c (WN) (being Variance is recognized )	14,098.5	14098.5

Working Note for the closing of variances to Cost of Goods Sold:-

1. Material Cost Variance = Standard cost – Actual cost

                                                = 0.95 × 76,950 – 60,979

                                                = 73,102.5 – 60,979

                                                = 12,123.5

2. Direct Labor Cost Variance = Standard cost – Actual cost

                                                     = 7.2 × 16,155 – 114,341

                                                     = 116,316 - 114,341

                                                     = 1,975

3. Total Variance = Material Cost Variance + Direct Labor Cost Variance

= 12,123.5 + 1,975

= 14,098.5