Question

Butrico Manufacturing Corporation uses a standard cost system, records materials price variances when direct materials are purchased, and prorates all variances at year-end. Variances associated with direct materials are prorated based on the balances of direct materials in the appropriate accounts, and variances associated with direct labor and manufacturing overhead are prorated to Finished Goods Inventory and to Cost of Goods Sold (CGS) on the basis of the relative direct labor cost in these accounts at year-end.

The following information is for the year ended December 31:

The company had no beginning inventories and no ending Work-in-Process (WIP) Inventory. It applies manufacturing overhead at 80% of standard direct labor cost.

Finished goods inventory at 12/31:
Direct materials	$	85,500
Direct labor		130,400
Applied manufacturing overhead		104,700
Direct materials inventory at 12/31		65,300
Cost of goods sold for the year ended 12/31:
Direct materials	$	352,100
Direct labor		740,600
Applied manufacturing overhead		592,500
Direct materials price variance (unfavorable)		11,100
Direct materials usage variance (favorable)		15,300
Direct labor rate variance (unfavorable)		19,900
Direct labor efficiency variance (favorable)		5,500
Actual manufacturing overhead incurred		691,300

Required:

1. Compute the amount of Direct Materials Price Variance to be prorated to Finished Goods Inventory at December 31.

2. Compute the total amount of direct materials cost in the Finished Goods Inventory at December 31, after all materials variances have been prorated.

3. Compute the total amount of direct labor cost in the Finished Goods Inventory at December 31, after all variances have been prorated.

4. Compute the total Cost of Goods Sold (CGS) for the year ended December 31, after all variances have been prorated.

Answer 1

1 & 2.Material Price & usage Variance proration
.	Given Bal.	% of Total	UF price variance allocated	Total	Allocation of usage variance(on the basis of D/M bal.in Col 2)		Total Direct material after proration of all Variances
1	2	3=2/487600	4=Col.3*11100	5=2+4	6	7	8=5+7
Direct material	65300	13.39%	1487	66787			66787
Direct material(usage)	-15300	-3.14%	-348	-15648		15648	0
Fin. Gds.	85500	17.53%	1946	87446	19.54%	-3057	84389
COGS	352100	72.21%	8015	360115	80.46%	-12591	347525
Total	487600	100.00%	11100	498700	100.00%	0	498700

3. & 4.Direct labor rate variance	19,900	U
Direct labor efficiency variance	5,500	F
Total(net) D/L Variance	14,400	U

Actual MOH incurred		691,300
Fin. Gds.MOH applied	104,700
COGS---- MOH applied	592,500
Total MOH applied		697,200
MOH over-applied(697200-691300)		5,900

Workings for 3 & 4
Items of Inventory	D/Mat. From above after proration of price & usage variance	D/L cost	% to total	Proration of net (U) D/L variance	MOH cost applied	Proration of OH(F) variance	Total cost after proration of all variances
1	2	3= Given	4=%*871000	5=Col .4%*14400	6=Given	7=Col 4 %*-5900	8=2+3+5+6+7
Finished Goods	84389	130400	14.97%	2156	104700	-883	320762
COGS	347525	740600	85.03%	12244	592500	-5017	1687852
Total	431913	871000	100.00%	14400	697200	-5900	2008613

Answers: (from tables & workings , in that order)

1.Amount of Direct Materials Price Variance to be prorated to Finished Goods Inventory at December 31= $ 87446

2.Total amount of direct materials cost in the Finished Goods Inventory at December 31, after all materials variances have been prorated = $ 84389

3. Total amount of direct labor cost in the Finished Goods Inventory at December 31, after all variances have been prorated= 130400+2156= $ 132556

4. Total Cost of Goods Sold (CGS) for the year ended December 31, after all variances have been prorated= $ 1687852