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Chapter 23: 12SE (page 1308)

Journalizing materials entries

The following direct materials variance analysis was performed for Moore.

Requirements

1. Record Moore’s direct materials journal entries. Assume purchases were made on the account.

2. Explain what management will do with this variance information

Short Answer

Expert verified
  1. Both the variances are unfavorable; therefore, they are debited in the journal entries.
  2. Variance information help in the controlling of the business entity.

Step by step solution

01

Definition of Variance Analysis

The analysis used to determine the difference between the actual activity level and the standard level of activity is known as variance analysis.

02

Direct material journal entries

Date

Accounts and Explanation

Debit $

Credit $

1

Raw material inventory

$3,160

Direct material cost variance

$2,370

Account payable

$5,530

(To record the purchase of direct material)

2

Work-in-process inventory

$2,880

Direct material efficiency variance

$280

Raw material inventory

$3,160

(To record the used direct material)

$8,690

$8,690

03

Use of variance information

With the variance information, the management will determine whether they acquire the same material at lower rates equal to standard cost or lower than the standard cost.

The business entity will also try to identify the factor in which higher material units are used than established standards.

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Most popular questions from this chapter

The following direct labor variance analysis was performed for Morris.

AC × AQ \(19,800 SC × SQ \)14.00 per DLHr × 1,350 DLHr \(18,900 SC × AQ \)14.00 per DLHr × 1,800 DLHr \(11.00 per DLHr × 1,800 DLHr \)25,200 Efficiency Variance Cost Variance \(5,400 F \)6,300 U

Requirements

1. Record Morris’s direct labor journal entry (use Wages Payable).

2. Explain what management will do with this variance information.

Preparing a flexible budget computing standard cost variance

Morton Recliners manufactures leather recliners and uses flexible budgeting and a

standard cost system. Morton allocates overhead based on yards of direct materials.

The company’s performance report includes the following selected data:

Static Budget Actual Results

(1,000 recliners) (980 recliners)

Sale (1,000 recliners \(505 each) \) 505,000

(980 recliners \(480 each) \) 470,400

Variable Manufacturing Costs:

Direct Materials (6,000 yds. @ \(8.60/yd.) 51,600

(6,143 yds. @ \)8.40/yd.) 51,601

Direct Labor (10,000 DLHr @ \(9.20/DLHr) 92,000

(9,600 DLHr @ \)9.30/DLHr) 89,280

Variable Overhead (6,000 yds. @ \(5.20/yd.) 31,200

(6,143 yds. @ \)6.60/yd.) 40,544

Fixed Manufacturing Costs:

Fixed Overhead 60,600 62,600

Total Cost of Goods Sold 235,400 244,025

Gross Profit \( 269,600 \) 226,375

Requirements

1. Prepare a flexible budget based on the actual number of recliners sold.

2. Compute the cost variance and the efficiency variance for direct materials and for direct labor. For manufacturing overhead, compute the variable overhead cost,variable overhead efficiency, fixed overhead cost, and fixed overhead volume variances. Round to the nearest dollar.

3. Have Morton’s managers done a good job or a poor job controlling materials, labor, and overhead costs? Why?

4. Describe how Morton’s managers can benefit from the standard cost system.

Question:List the fixed overhead variances, and briefly describe each.

Question: What is a static budget performance report?

Office Plus sells its main product, ergonomic mouse pads, for \(13 each. Its variable cost is \)5.10 per pad. Fixed costs are \(205,000 per month for volumes up to 65,000 pads. Above 65,000 pads, monthly fixed costs are \)250,000. Prepare a monthly flexible budget for the product, showing sales revenue, variable costs, fixed costs, and operating income for volume levels of 45,000, 55,000, and 75,000 pads.
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