Variances, Entries, and Income Statement
A summary of Glendale Company's manufacturing variance report for May 2016 follows:
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Total Standard Costs (9,200 units) |
Actual Costs (9,200 units) |
Variances |
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Direct material |
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$45,540 |
$49,980 |
$4,440 |
U |
Direct labor |
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213,900 |
213,000 |
900 |
F |
Variable overhead |
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44,160 |
43,840 |
320 |
F |
Fixed overhead |
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9,660 |
9,660 |
- |
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$313,260 |
$316,480 |
$3,220 |
U |
Standard material cost per unit of product is 0.5 pounds at $9.90 per pound, and standard direct labor cost is 1.5 hours at $15.50 per hour. The total actual materials cost represents 4,900 pounds purchased at $10.20 per pound. Total actual labor cost represents 14,200 hours at $15.00 per hour. According to standards, variable overhead rate is applied at $3.20 per direct labor hour (based on a normal capacity of 15,000 direct labor hours or 10,000 units of product). Assume that all fixed overhead is applied to work in progress inventory.
a. Determine the following variances:
Do not use negative signs with any of your answers. Next to each variance answer, select either "F" for Favorable or "U" for Unfavorable.
Materials Variances |
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Actual cost: |
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Split cost: |
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Standard cost: |
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Materials price |
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Materials efficiency |
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Labor Variances |
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Actual cost: |
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Split cost: |
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Standard cost: |
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Labor rate |
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Labor efficiency |
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Variable Overhead Variances |
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Actual cost: |
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Split cost: |
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Standard cost: |
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Variable overhead spending |
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Variable overhead efficiency |
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b. Prepare general journal entries to record standard costs, actual costs, and related variances for material, labor, and overhead.
General Journal |
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Description |
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Debit |
Credit |
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Materials inventory |
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To record the purches of direct materials |
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Work in process inventory |
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To record the use of direct materials |
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Work in process inventory |
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Labor rate variance |
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To record direct labor costs and related cost variances. |
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Work in process inventory |
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Manufactruing overhead |
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To apply variable overhead to work in progress and record related cost variances |
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To apply fixed overhead to work in progress |
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c. Prepare journal entries to record the transfer of all completed units to Finished Goods Inventory and the subsequent sale of 8,400 units on account at $54 each (assume no beginning finished goods inventory).
General Journal |
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Description |
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Debit |
Credit |
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To record completion ofunits |
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To record sale ofunits |
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To record cost ofunits |
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d. Prepare a partial income statement (through gross profit on sales) showing gross profit based on standard costs, the incorporation of variances, and gross profit based on actual costs.
Do not use negative signs with any of your answers below.
Glendale Company
Partial Income Statement
For the Month Ended May 31,2016 |
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Sales |
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Cost of goods at standard cost |
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Gross profit at standard cost |
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Net cost variance |
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Material |
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Labor |
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Variable overhead |
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Gross profit at actual cost |
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