Question

Variances and Journal Entries
Kent Company manufactures a single product and uses a standard costing system. The nature of its product dictates that it be sold in the period it is produced. Thus, no ending work in process or finished goods inventories remain at the end of the period. However, raw materials can be stored and are purchased in bulk when prices are favorable. Per-unit, standard product costs are material, $6.40 (0.5 pound); labor, $15.40 (1.5 hours); and variable overhead, $3.40 (based on direct labor hours). Budgeted fixed overhead is $96,000. Kent Company accounts for all inventories and cost of goods sold at standard cost and records each variance in a separate account. The following data relate to June, 2016 when 7,800 finished units were produced.

a. Assume Kent purchased 4,500 pounds of raw materials on account at $12.00 per pound and used 4,200 pounds in June's production, prepare a journal entry to record the purchase of raw materials and a separate journal entry to record the use of raw materials in production. Record these entries using standard costs and include the appropriate materials variances.

b. Assuming Kent's employees worked 12,000 direct labor hours at an average hourly rate of $10.90, prepare a journal entry to record actual costs, standard costs, and any labor variances.

c. Assuming Kent's actual and applied variable overhead was $26,100 and that budgeted and actual fixed overhead incurred was $96,000, prepare a journal entry to record actual and standard overhead costs and any overhead variances.

Answer 1

Part a)

The journal entries are prepared as below:

Account Titles	Debit	Credit
Materials Inventory (4,500*6.4*2)	$57,600
Accounts Payable [4,500*(6.4*2 - 12)]		$3,600
Materials Price Variance (4,500*12)		$54,000
(To record the purchase of direct materials)
Work in Process Inventory (7,800*.5*2*6.40)	$49,920
Materials Efficiency Variance (53,760 - 49,920)	$3,840
Materials Inventory (4,200*12.80)		$53,760
(To record the use of direct materials)

_____

Part b)

The journal entry is given as below:

Account Titles	Debit	Credit
Work in Process Inventory (7,800*1.5*15.40/1.5*1)	$120,120
Labor Rate Variance [12,000*(10.90 - 15.40/1.5*1)]	$7,600
Labor Efficiency Variance [15.40/1.5*1(12,000 - 7,800*1.5)]	$3,080
Wages Payable (12,000*10.90)		$130,800
(To record direct labor costs)

_____

Part c)

The journal entry is prepared as follows:

Account Titles	Debit	Credit
Work in Process Inventory (96,000 + 26,100 + 14,700 - 1,020)	$135,780
Variable Overhead Efficiency Variance [3.40*(12,000 - 7,800*1.50)]	$1,020
Variable Overhead Spending Variance (26,100 - 12,000*3.40)		$14,700
Manufacturing Overhead (96,000 + 26,100)		$122,100
(To record actual and standard overhead costs)