Question

Variances, Entries, and Income Statement
A summary of Glendale Company's manufacturing variance report for May 2016 follows:

			Total Standard Costs (9,200 units)		Actual Costs (9,200 units)		Variances
Direct material			$45,540		$49,980		$4,440		U
Direct labor			213,900		213,000		900		F
Variable overhead			44,160		43,840		320		F
Fixed overhead			9,660		9,660		-
			$313,260		$316,480		$3,220		U

Standard material cost per unit of product is 0.5 pounds at $9.90 per pound, and standard direct labor cost is 1.5 hours at $15.50 per hour. The total actual materials cost represents 4,900 pounds purchased at $10.20 per pound. Total actual labor cost represents 14,200 hours at $15.00 per hour. According to standards, variable overhead rate is applied at $3.20 per direct labor hour (based on a normal capacity of 15,000 direct labor hours or 10,000 units of product). Assume that all fixed overhead is applied to work in progress inventory.

a. Determine the following variances:

Do not use negative signs with any of your answers. Next to each variance answer, select either "F" for Favorable or "U" for Unfavorable.

Materials Variances
Actual cost:
Split cost:
Standard cost:
Materials price		FU
Materials efficiency		FU

Labor Variances
Actual cost:
Split cost:
Standard cost:
Labor rate		FU
Labor efficiency		FU

Variable Overhead Variances
Actual cost:
Split cost:
Standard cost:
Variable overhead spending		FU
Variable overhead efficiency		FU

b. Prepare general journal entries to record standard costs, actual costs, and related variances for material, labor, and overhead.

General Journal
Description		Debit	Credit
Materials inventory
Accounts payableAccounts receivableCost of goods soldFinished goods inventoryLabor efficiency varianceManufacturing overheadMaterials efficiency varianceMaterials inventoryMaterials price varianceSalesVariable overhead efficiency varianceVariable overhead spending varianceWages payableWork in process inventory
Accounts payableAccounts receivableCost of goods soldFinished goods inventoryLabor efficiency varianceManufacturing overheadMaterials efficiency varianceMaterials inventoryMaterials price varianceSalesVariable overhead efficiency varianceVariable overhead spending varianceWages payableWork in process inventory
To record the purches of direct materials
Work in process inventory
Accounts payableAccounts receivableCost of goods soldFinished goods inventoryLabor efficiency varianceManufacturing overheadMaterials efficiency varianceMaterials inventoryMaterials price varianceSalesVariable overhead efficiency varianceVariable overhead spending varianceWages payableWork in process inventory
Accounts payableAccounts receivableCost of goods soldFinished goods inventoryLabor efficiency varianceManufacturing overheadMaterials efficiency varianceMaterials inventoryMaterials price varianceSalesVariable overhead efficiency varianceVariable overhead spending varianceWages payableWork in process inventory
To record the use of direct materials
Work in process inventory
Accounts payableAccounts receivableCost of goods soldFinished goods inventoryLabor efficiency varianceManufacturing overheadMaterials efficiency varianceMaterials inventoryMaterials price varianceSalesVariable overhead efficiency varianceVariable overhead spending varianceWages payableWork in process inventory
Labor rate variance
Accounts payableAccounts receivableCost of goods soldFinished goods inventoryLabor efficiency varianceManufacturing overheadMaterials efficiency varianceMaterials inventoryMaterials price varianceSalesVariable overhead efficiency varianceVariable overhead spending varianceWages payableWork in process inventory
To record direct labor costs and related cost variances.
Work in process inventory
Accounts payableAccounts receivableCost of goods soldFinished goods inventoryLabor efficiency varianceManufacturing overheadMaterials efficiency varianceMaterials inventoryMaterials price varianceSalesVariable overhead efficiency varianceVariable overhead spending varianceWages payableWork in process inventory
Accounts payableAccounts receivableCost of goods soldFinished goods inventoryLabor efficiency varianceManufacturing overheadMaterials efficiency varianceMaterials inventoryMaterials price varianceSalesVariable overhead efficiency varianceVariable overhead spending varianceWages payableWork in process inventory
Manufactruing overhead
To apply variable overhead to work in progress and record related cost variances
Accounts payableAccounts receivableCost of goods soldFinished goods inventoryLabor efficiency varianceManufacturing overheadMaterials efficiency varianceMaterials inventoryMaterials price varianceSalesVariable overhead efficiency varianceVariable overhead spending varianceWages payableWork in process inventory
Accounts payableAccounts receivableCost of goods soldFinished goods inventoryLabor efficiency varianceManufacturing overheadMaterials efficiency varianceMaterials inventoryMaterials price varianceSalesVariable overhead efficiency varianceVariable overhead spending varianceWages payableWork in process inventory
To apply fixed overhead to work in progress

c. Prepare journal entries to record the transfer of all completed units to Finished Goods Inventory and the subsequent sale of 8,400 units on account at $54 each (assume no beginning finished goods inventory).

General Journal
Description		Debit	Credit
Accounts payableAccounts receivableCost of goods soldFinished goods inventoryLabor efficiency varianceManufacturing overheadMaterials efficiency varianceMaterials inventoryMaterials price varianceSalesVariable overhead efficiency varianceVariable overhead spending varianceWages payableWork in process inventory
Accounts payableAccounts receivableCost of goods soldFinished goods inventoryLabor efficiency varianceManufacturing overheadMaterials efficiency varianceMaterials inventoryMaterials price varianceSalesVariable overhead efficiency varianceVariable overhead spending varianceWages payableWork in process inventory
To record completion ofunits
Accounts payableAccounts receivableCost of goods soldFinished goods inventoryLabor efficiency varianceManufacturing overheadMaterials efficiency varianceMaterials inventoryMaterials price varianceSalesVariable overhead efficiency varianceVariable overhead spending varianceWages payableWork in process inventory
Accounts payableAccounts receivableCost of goods soldFinished goods inventoryLabor efficiency varianceManufacturing overheadMaterials efficiency varianceMaterials inventoryMaterials price varianceSalesVariable overhead efficiency varianceVariable overhead spending varianceWages payableWork in process inventory
To record sale ofunits
Accounts payableAccounts receivableCost of goods soldFinished goods inventoryLabor efficiency varianceManufacturing overheadMaterials efficiency varianceMaterials inventoryMaterials price varianceSalesVariable overhead efficiency varianceVariable overhead spending varianceWages payableWork in process inventory
Accounts payableAccounts receivableCost of goods soldFinished goods inventoryLabor efficiency varianceManufacturing overheadMaterials efficiency varianceMaterials inventoryMaterials price varianceSalesVariable overhead efficiency varianceVariable overhead spending varianceWages payableWork in process inventory
To record cost ofunits

d. Prepare a partial income statement (through gross profit on sales) showing gross profit based on standard costs, the incorporation of variances, and gross profit based on actual costs.

Do not use negative signs with any of your answers below.

Glendale Company Partial Income Statement For the Month Ended May 31,2016
Sales
Cost of goods at standard cost
Gross profit at standard cost
Net cost variance
Material
Labor
Variable overhead
Gross profit at actual cost

Answer 1

material variances
Actual cost	49980
Split cost (4900*9.90)	48510
Standard cost	45540
Material price (Actual cost - Split cost)	1470	U
Material efficiency (Split cost - Standard cost)	2970	U
Direct labor variances
Actual cost	213000
Split cost (14200*15.5)	220100
Standard cost	213900
Labor rate (Actual cost - Split cost)	7100	F
Labor efficiency (Split cost - Standard cost)	6200	U
Variable overhead
Actual cost	43840
Split cost (14200*3.20)	45440
Standard cost	44160
Variable overhead Spending (Actual cost - Split cost)	1600	F
Variable overhead efficiency (Split cost - Standard cost)	1280	U

Journal entries
Account title	Debit	Credit
material inventory	48510
material price varinace	1,470
Account payable		49980
Work in process Inventory	45540
material efficiency variance	2,970
material inventory		48510
Work in procress Inventory	213900
Labor efficiency variance	6200
Labor rate variance		7100
Wages payable		213000
(To record direct material variance with acured wages payable.)
Work in procress Inventory	44160
Variable overhead efficiency	1280
Variable overhead Spending		1600
Manufacture overhead		43840
(To record Variable overhead.)
Work in procress Inventory	9660
Manufacture overhead		9660
(To record Fixed overhead.)

Account title	Debit	Credit
Finished goods inventory	313260
Work in procress inventory		313260
(To record completion of Finished goods inventory.)
Cost of goods sold	286020
Finished goods inventory (8400*(313260/9200))		286020
(To record Finished goods Inventory sold.)
Cash [8400*54]	453600
Sales Revenue		453600

Partial Income statement
Sales Revenue		$       453,600
Less: Cost of Goods Sold at Standard cost	$       286020
Gross Profit at Standard cost		$ 167580
Net Cost Variance
Material (-1470-2970)	$        (4440)
Labor (7100-6200)	$ 900
Variable Overhead (1600-1280)	$ 320	$          (3220)
Gross Profit at actual cost		$ 164360