Question

Please explain step by step!

Slick Corporation is a small producer of synthetic motor oil. During May, the company produced 5,000 cases of lubricant. Each case contains 12 quarts of synthetic oil. To achieve this level of production, Slick purchased and used 16,500 gallons of direct materials at a cost of $20,647. It also incurred average direct labor costs of $14 per hour for the 3,997 hours worked in May by its production personnel. Manufacturing overhead for the month totaled $9,369, of which $2,200 was considered fixed. Slick's standard cost information for each case of synthetic motor oil is as follows.

Direct materials standard price	$	1.30	per gallon
Standard quantity allowed per case		3.25	gallons
Direct labor standard rate	$	16	per hour
Standard hours allowed per case		0.75	direct labor hours
Fixed overhead budgeted	$	2,600	per month
Normal level of production		5,200	cases per month
Variable overhead application rate	$	1.50	per case
Fixed overhead application rate ($2,600 ÷ 5,200 cases)		0.50	per case
Total overhead application rate	$	2.00	per case

Required:

a. Compute the materials price and quantity variances.

b. Compute the labor rate and efficiency variances.

c. Compute the manufacturing overhead spending and volume variances.

d. Prepare the journal entries to:

1. Charge materials (at standard) to Work in Process.

2. Charge direct labor (at standard) to Work in Process.

3. Charge manufacturing overhead (at standard) to Work in Process.

4. Transfer the cost of the 5,000 cases of synthetic motor oil produced in May to Finished Goods.

5. Close any over- or underapplied overhead to cost of goods sold.

Answer 1

A . Material price variance = (standard price - actual price) *actual quantity
=standard price * actual quantity - actual cost
=16500 * 1.3 - 20647
=803 favorable

material quantity variance = standard quantity for actual output - actual quantity) * standard price
standard quantity for actual output = 3.25*5000 =16250

material quantity variance = (16250 - 16500)*1.3
=325 unfavorable

B. labor rate variance= = Actual labor hours × (Standard rate – Actual rate)
=3997*(16-14)
=7994 favorable

labor efficiency variance = standard rate * (standard hour for actual output - actual hour)

standard hour for actual output = standard hr per case * actual output
=0.75*5000
=3750

labor efficiency variance= 16*(3750-3997)
=3952 unfavorable

c.manufacturing overhead spending variance = fixed overhead spending variance + variable overhead spending variance

fixed overhead spending variance= Budgeted overhead - actual overhead

=2600-2200
=400 favorable

variable overhead spending variance = standard overhead - actual overhead
=(1.50 *5000) - (9369-2200)
=331 favorable

manufacturing overhead spending variance = 400 +331 = 731

manufacturing overhead volume variance = fixed overhead volume variance
=standard overhead - budgted overhead

standard overhead = 0.5*5000
=2500

budgeted overhead = 2600 (given)

manufacturing overhead volume variance = 2500-2600
=100 unfavorable

D( I ) work in progress inventory = actual cases * standard quantity allowed per cases * standard cost
=5000*3.25*1.3
=21125

journal entry

work in process (standard cost)	21125
material quantity variance (unfavorable)	325
material price variance (favorable)		803
Direct material variance (actual cost)		20647