Concept explainers
(Appendix used in requirement [c]) Comprehensive Cost
Maple Leaf Production manufactures truck tires. The following information is available for the last operating period.
- Maple Leaf produced and sold 92,000 tires for $40 each. Budgeted production was 100,000 tires.
- Standard variable costs per tire follow:
- Fixed production
overhead costs:
- Fixed overhead is applied at the rate of $15 per tire.
- Actual production costs:
Required
- a. Prepare a cost variance analysis for each variable cost for Maple Leaf Productions.
- b. Prepare a fixed overhead cost variance analysis.
- c. (Appendix) Prepare the
journal entries to record the activity for the last period usingstandard costing . Assume that all variances are closed to Cost of Goods Sold at the end of the operating period.
a.
Prepare a cost variance analysis for each variable costs.
Explanation of Solution
Variable cost variance analysis:
The cost analysis of the difference between the actual cost incurred and the budgeted or standard costs that varies with production levels is called the variable cost variance analysis.
Prepare a variable cost variance analysis:
Direct Material Variances | Amount |
Price Variance | $ 76,800F(1) |
Efficiency Variance | $ 32,000U(2) |
Total Variance | $ 44,800F |
Direct Labor Variances | |
Price Variance | $ 14,080U(3) |
Efficiency Variance | $ 28,800F(4) |
Total Variance | $ 13,920F |
Variable Overhead Variance: | |
Price Variance | $ 3,456U(5) |
Efficiency Variance | $ 7,200U(6) |
Total Variance | $ 3,744U |
Table: (1)
Working Note 1:
Working Note 2:
Working Note 3:
Working Note 4:
Working Note 5:
Working Note 6:
b.
Prepare a fixed overhead cost variance analysis.
Explanation of Solution
Fixed overhead cost variance analysis:
The cost analysis of the difference between the fixed overhead cost incurred and the budgeted or standard fixed overhead costs is called the fixed overhead cost variance analysis.
Prepare a fixed overhead cost variance analysis:
Fixed Overhead Variances | |
Price Variance | $ 10,000U |
Production volume variance | $30,000F(7) |
Total Variance | $ 20,000F |
Table: (2)
Working Note 7:
c.
Prepare journal entries to record the activity based on standard costing.
Explanation of Solution
Journal Entries Using Standard Costing:
While the recording of production processes is done using standard costing, all the costs transferred will be recorded at standard cost without knowing the actual costs or incurring the actual costs.
Prepare the journal entries based on standard costing:
Date | Accounts Title and Explanation | Post Ref. | Debit | Credit |
Journal Entries for Direct Material | ||||
Work-in-Process Inventory | $ 7,36,000 | |||
Materials Efficiency Variance | $32,000 | |||
Materials Price Variance | $76,800 | |||
Accounts Payable | $ 6,91,200 | |||
(To record the purchase of direct material and variances) | ||||
Journal Entries for Direct Labor | ||||
Work-in-Process Inventory | $ 6,62,400 | |||
Direct Labor Price Variance | $14,080 | |||
Direct Labor Efficiency Variance | $28,800 | |||
Wages Payable | $ 6,47,680 | |||
To record the cost of direct labor and variances) | ||||
Journal Entries for Variable Overhead | ||||
Work-in-Process Inventory | $ 1,65,600 | |||
Variable Overhead Applied | $ 1,65,600 | |||
(To transfer the balance of variable overhead applied account) | ||||
Variable Overhead (Actual) | $ 1,76,256 | |||
Miscellaneous Payables and Inventory Accounts | $ 1,76,256 | |||
(To record the actual overhead cost incurred during the production) | ||||
Variable Overhead (Applied) | $ 1,65,600 | |||
Variable Overhead Price Variance | $3,456 | |||
Variable Overhead Efficiency Variance | $7,200 | |||
Variable Overhead (Actual) | $ 1,76,256 | |||
(To record and transfer the balance of overhead applied and variance) | ||||
Journal Entries for Fixed Overhead | ||||
Work-in-Process Inventory | $13,80,000 | |||
Fixed Overhead Applied | $13,80,000 | |||
(To record the cost of fixed overhead applied) | ||||
Fixed Overhead (Actual) | $13,60,000 | |||
Miscellaneous Payables and Inventory Accounts | $13,60,000 | |||
(To record the fixed overhead actual cost incurred) | ||||
Fixed Overhead (Applied) | $13,80,000 | |||
Fixed Overhead Price Variance | $10,000 | |||
Fixed Overhead Production volume variance | $30,000 | |||
Fixed Overhead (Actual) | $13,60,000 | |||
(To record fixed overhead variances and applied amount to the production) | ||||
Journal Entries for finished goods | ||||
Finished Goods Inventory | $29,44,000 | |||
Work-in-Process Inventory | $29,44,000 | |||
(To transfer the finished goods inventory balance to work-in-process account) | ||||
Recording 92,000 tires' sale | ||||
Accounts Receivable | $36,80,000 | |||
Sales Revenue | $36,80,000 | |||
Cost of Goods Sold | $29,44,000 | |||
Finished Goods Inventory | $29,44,000 | |||
(To record the sale of finished goods and transfer the balance to finished goods account) | ||||
Journal entries for recording variance | ||||
Materials Price Variance | $76,800 | |||
Direct Labor Efficiency Variance | $28,800 | |||
Fixed Overhead Production Volume Variance | $30,000 | |||
Materials Efficiency Variance | $32,000 | |||
Direct Labor Price Variance | $14,080 | |||
Variable Overhead Price Variance | $3,456 | |||
Variable Overhead Efficiency Variance | $7,200 | |||
Fixed Overhead Price Variance | $10,000 | |||
Cost of Goods Sold | $68,864 | |||
(Transferring the variance balances to cost of goods sold) |
Table: (3)
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Chapter 16 Solutions
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