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 (2.8 lbs. @ $0.80) $2.24

2 Direct labor (0.75 hr. @ $7.8) 5.85

3 Standard prime cost $8.09

During the year, 79,300 pounds of material were purchased and used for the changeover activity. There were 26,000 batches produced, with the following actual prime costs:

Direct materials $50,946

Direct labor (for 19,457 hrs.) $149,386

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

	Material Price Variance =	(Actual Price - Standard Price) * Actual Quantity
	=	$50,946 - ($0.80 * 79,300 pounds)
	=	$12,494	Favorable
	Material Usage Variance =	(Actual Quantity - Standard Quantity) * Standard Rate
	=	(79,300 - 72,800) * $0.80
	=	$5,200	Unfavorable
	Labor rate variance =	(Actual Rate - Standard Rate) * Actual hours
	=	$149,386 - ($7.80 per hr * 19,457 hrs.)
	=	$2,378.60	Favorable
	Labor efficiency variance =	(Actual hours - Standard hours) * Standard Rate
	=	(19,457 - 19,500) * $7.80
	=	$335.40	Favorable
	Standard quantity	72,800	pounds
	(26,000 x 2.8)
	Standard hours	19,500	hours
	(26,000 x 0.75 hour)
	Accounts Title	Debit	Credit
1	Materials	$63,440
	Materials Price Variance		$12,494
	Accounts Payable		$50,946
2	Work-in-Process	$58,240
	Materials Usage Variance	$5,200
	Materials		$63,440
3	Work-in-Process	$152,100
	Labor Rate Variance		$2,379
	Labor Efficiency Variance		$335
	Accrued Payroll		$149,386
4	Materials Price Variance	$12,494
	Labor Rate Variance	$2,379
	Labor Efficiency Variance	$335
	Materials Usage Variance		$5,200
	Cost of Goods Sold		$10,008