Listor Company made 3,800 bookshelves using 23,320 board feet of wood costing $2

Question

Listor Company made 3,800 bookshelves using 23,320 board feet of wood costing $290,000. The company's direct materials standards for one bookshelf are 8 board feet of wood at $12 per board foot. Listor Company records standard costs in its accounts and its material variances in separate accounts when it assigns materials costs to the goods in process inventory account.

A) Show the journal entry that both charges the direct materials costs to the goods in process inventory account and records the materials variances in their proper accounts.
B)Assume that Listor's material variances are the only variaces accumulated in the accounting period and that they are immaterial. Prepare the adjusting journal entry to close the variance accounts at period end.
C)Identify the variance that should be investigated according to the management by exception concepts.

Explanation / Answer

A)
Goods In Process Inventory       $279,840
Materials Price Variance             $10,160
Accounts Payable                                    $290,000
To record purchase of 23,320 board feet at standard
rate of $12 per board foot
_____________________________________________      
B)Assume that Listor's material variances are the only variaces accumulated in the accounting period and that they are immaterial. Prepare the adjusting journal entry to close the variance accounts at period end.

Income Summary                      $10,160
    Materials Price Variance                         $10,160
To close materials price varinace (Unfavorable) account
_________________________________________________
C)Identify the variance that should be investigated according to the management by exception concepts.

Materials Price Variance    =  (Actual Qty x Actual Price) - (Actual Qty x Standard Price)
= $290,000 - (23,320 x $12)
= $10,160 Unfavorable)

Materials Qty Variance    =  Standard Price x (Actual Qty - Standard Qty)
= $12 x (23,320 - [3,800 x 8])
= $12 x 7,080 = $84,960

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