Question

Standard Costing:

Ultra, Inc. manufactures and sells a full line of sunglasses. The company uses a standard cost system. Department managers' are held responsible for the explanation of the variances in their department performance reports. Recently, the variances in the Prestige line of sunglasses have been of concern. Data for the month of August is presented below. Assume beginning and ending inventory levels for WiP and FG are zero.

				Static Budget	Actual
revenues				$600,000	$625,000
DM				$150,000	$163,400
DL				$135,000	$138,700
FOH (cost driver = DL hours)				$114,000	$121,000
gross profit				$201,000	$201,900
selling price per Prestige sunglass				$76.92	$76.22
DM (total # ounces)				15,600	16,100
DL rate ($ per DL hour)				$18.00	$19.55

1-Prepare the journal entry for the purchase of DM. Assume DM ourchases = DM used.

-DM inventory

-DM spending Variance

-Accounts payable

2-Prepare the journal entry for the release of DM into production.

-WiP inventory

-DM efficiency variance

-DM inventory

3-Prepare the journal entries for DL.

A –

    -DL expense

    -Wage payable.

B-

     -WiP inventory

      -DL efficiency variance

       -DL spending variance

        -DL expense

4-Prepare the journal entries for FOH.

A-

         -FOH expenses

          -accounts payable

B-

        -mfg FOH control

        - FOH expenses

C-

      -WIP inventory

      -mfg OH control

D-

       -mfg FOH control

        -FOH volume variance

          -FOH spending Variance

5-Prepare the adjusting entries to close out the variance accounts

DM spending variance

CGS

DM efficiency variance

CGS

DL spending variance

CGS

DL efficiency variances

CGS

FOH volume variance

CGS

FOH spending variance

CGS

  

Answer 1

		Journal
S.No	detail	Particulars	Debit	Credit	Working note
1	Purchase of direct material	Direct material Inventory	$154,807		Direct material spending variance = (Actual price - standard price) x Actual quantity
		Direct material spending variance	$8,593	$163,400	($10.1490 - $9.6153) x 16100 = $8593
		Accounts payable
2	for the release of DM into production	WIP inventory	$150,000		DM efficiency variance = (Actual quantity - Standard quantity) x standard rate
		DM efficiency variance	$4,807		(16100 - 15600) x 9.6153    = $4807
		DM inventory		$154,807
3	entries for DL	DL expenses	$138,700
		Wages payable		$138,700
4	entry for wip	WIP Inventory	$135,000		(a) DL efficiency variance = (Actual hour - standard hour)x Standard rate
		DL efficiency variance	$7,925		(7094.6291 - 7500) x $19.55= $7925 Favourable
		DL spending variance	$11,625		(b)DL spending variance = (AR - SR) x standard hrs.
		DL expenses		$138,700	($19.55 - $18) x 7500      = $11625
5	entry for FOH	FOH expenses	$121,000
		Accounts payable		$121,000
		Mfg FOH control	$7,000		Mfg FOH c = Actual overhead - Standard ovhd
		FOH expenses		$7,000	= 121000 - 114000      = $7000
		WIP inventory	$114,000
		Mfg FOH control		$114,000
		Mfg FOH Control	$7,000		FOH volume variance = (Standard hour allowed x overhead rate) - overhead charged to production
		FOH volume variance	$6,500		(7500 x 17) - 121000     =    $6500
		FOH spending variance		$13,500	FOH spending variance = Standard hour worked (Actual overhead rate - standard overhead rate)
					7500 ($17 - $15.20) = $13500
6	Adjustment entries to close out the variance account	(a)M spending variance	$8,953
		cost of goods sold		$8,953
		DM efficiency variance	$4,807
		CGS		$4,807
		DL spending variance	$11,625
		CGS		$11,625
		DL efficiency variance	$7,925
		CGS		$7,925
		FOH volume variance	$6,500
		CGS		$6,500
		FOH spending variance	$13,500
		CGS		$13,500