Question

1. Provide the entries to record the direct cost variances;
2. Provide the entries to record the incurrence of actual VMOH and FMOH, the allocation of VMOH and FMOH, and the variances for VMOH and FMOH;
3. Provide the entry to make an adjustment to CGS

BUDGETED
Direct Materials	5.00	lbs. per unit	$30.00	per lbs.
Direct Labor	2.00	hours per unit	$25.00	per hour
VMOH	$3,200,000
FMOH	$5,600,000
MHRS	80,000	MHRS
Production volume	40,000	units
Allocation base	MHRS
ACTUAL
Direct Materials	4.50	lbs. per unit	$32.00	per lbs.
Direct Labor	2.50	hours per unit	$22.00	per hour
VMOH	$3,192,000
FMOH	$5,300,000
MHRS	84,000	MHRS
Production volume	35,000	units

Answer 1

Entries to record the direct cost variances:

Material Price Variance:

Account Name	Debit	Credit
Materials (35,000 x 4.50 x $30.00)	4,725,000
Materials Price Variance (35,000 x 4.50 x $2.00)	315,000
Accounts Payable (35,000 x 4.50 x $32.00)		5,040,000

Material Quantity Variance:

Account Name	Debit	Credit
Work-in-process (35,000 x 5 x $30.00)	5,250,000
Materials Quantity Variance (35,000 x .50 x $30.00)		525,000
Materials (35,000 x 4.50 x $30.00)		4,725,000

Labour Variance:

Account Name	Debit	Credit
Work-in-process (35,000 x 2 x $25.00)	1,750,000
Labour Efficiency Variance (35,000 x .50 x $25.00)	437,500
Labour Rate Variance (35,000 x 2.50 x $3.00)		262,500
Wages Payable (35,000 x 2.50 x $22.00)		1,925,000

Incurrence of Actual VMOH:

Account Name	Debit	Credit
Variable Manufacturing Overhead Incurred	38
Accounts Payable ($3,192,000/ 84,000)		38

Incurrence of Actual FMOH:

Account Name	Debit	Credit
Fixed Manufacturing Overhead Incurred	5,300,000
Accounts Payable		5,300,000

Allocation of FMOH:

Account Name	Debit	Credit
Inventory Finished Goods	5,600,000
Fixed Manufacturing Overhead Applied		5,600,000

Allocation of VMOH:

Account Name	Debit	Credit
Inventory Finished Goods	40
Variable Manufacturing Overhead Applied		40

Adjustment to CGS

Account Name	Debit	Credit
Cost of Goods Sold	1,492,000
Factory Overhead		1,492,000