Problem #2: Standard Costing Ultra, Inc. manufactures and sells a full line of s
ID: 2525228 • Letter: P
Question
Problem #2: Standard Costing Ultra, Inc. manufactures and sells a full line of sunglasses. The company uses a standard cost system. Department managers' are held responsible for the explanation of the variances in their department performance reports. Recently, the variances in the Prestige line of sunglasses have been of concern. Data for the month of August is presented below. Assume beginning and ending inventory levels for WiP and FG are zero. Static Budget Actual revenues $600,000 $625,000 DM $150,000 $163,400 DL $135,000 $138,700 FOH (cost driver = DL hours) $114,000 $121,000 gross profit $201,000 $201,900 selling price per Prestige sunglass $76.92 $76.22 DM (total # ounces) 15,600 16,100 DL rate ($ per DL hour) $18.00 $19.55 (1) Prepare the journal entry for the purchase of DM. Assume DM ourchases = DM used. (2 points) DM inventory DM spending variance accounts payable (2) Prepare the journal entry for the release of DM into production. (2 points) WiP inventory DM efficiency variance DM inventory (3) Prepare the journal entries for DL. (4 points) DL expense wages payable WiP inventory DL efficiency variance DL spending variance DL expense (4) Prepare the journal entries for FOH. (4 points) FOH expenses accounts payable mfg FOH control FOH expenses WiP inventory mfg FOH control mfg FOH control FOH volume variance FOH spending variance (5) Prepare the adjusting entries to close out the variance accounts. (4 points) DM spending variance CGS DM efficiency variance CGS DL spending variance CGS DL efficiency variances CGS FOH volume variance CGS FOH spending variance CGS (6) Complete the CGS T-Account below. (4 points) CGS DM @ std DL @ std FOH @ std Adjustments to CGS Adjusted CGS Problem #2: Standard Costing Ultra, Inc. manufactures and sells a full line of sunglasses. The company uses a standard cost system. Department managers' are held responsible for the explanation of the variances in their department performance reports. Recently, the variances in the Prestige line of sunglasses have been of concern. Data for the month of August is presented below. Assume beginning and ending inventory levels for WiP and FG are zero. Static Budget Actual revenues $600,000 $625,000 DM $150,000 $163,400 DL $135,000 $138,700 FOH (cost driver = DL hours) $114,000 $121,000 gross profit $201,000 $201,900 selling price per Prestige sunglass $76.92 $76.22 DM (total # ounces) 15,600 16,100 DL rate ($ per DL hour) $18.00 $19.55 (1) Prepare the journal entry for the purchase of DM. Assume DM ourchases = DM used. (2 points) DM inventory DM spending variance accounts payable (2) Prepare the journal entry for the release of DM into production. (2 points) WiP inventory DM efficiency variance DM inventory (3) Prepare the journal entries for DL. (4 points) DL expense wages payable WiP inventory DL efficiency variance DL spending variance DL expense (4) Prepare the journal entries for FOH. (4 points) FOH expenses accounts payable mfg FOH control FOH expenses WiP inventory mfg FOH control mfg FOH control FOH volume variance FOH spending variance (5) Prepare the adjusting entries to close out the variance accounts. (4 points) DM spending variance CGS DM efficiency variance CGS DL spending variance CGS DL efficiency variances CGS FOH volume variance CGS FOH spending variance CGS (6) Complete the CGS T-Account below. (4 points) CGS DM @ std DL @ std FOH @ std Adjustments to CGS Adjusted CGSExplanation / Answer
1. Journal entry for the purchase of Direct material Direct material Inventory $154,807 Direct material spending variance $8,593 Accounts payable $163,400 Direct material spending variance = (Actual price - standard price) x Actual quantity = ($10.1490 - $9.6153) x 16100 = $8593 2. Journal entry for the release of DM into production WIP inventory $150,000 DM efficiency variance $4,807 DM inventory $154,807 DM efficiency variance = (Actual quantity - Standard quantity) x standard rate = (16100 - 15600) x 9.6153 = $4807 3. Journal entries for DL DL expenses $138,700 Wages payable $138,700 WIP Inventory $135,000 DL efficiency variance $7,925 DL spending variance $11,625 DL expenses $138,700 DL efficiency variance = (Actual hour - standard hour)x Standard rate = (7094.6291 - 7500) x $19.55 = $7925 Favourable DL spending variance = (Actual rate - standard rate) x standard hour = ($19.55 - $18) x 7500 = $11625 4. Journal entry for FOH FOH expenses $121,000 Accounts payable $121,000 Mfg FOH control $7,000 FOH expenses $7,000 Mfg FOH control = Actual overhead - Standard overhead = 121000 - 114000 = $7000 WIP inventory $114,000 Mfg FOH control $114,000 Mfg FOH Control $7,000 FOH volume variance $6,500 FOH spending variance $13,500 FOH volume variance = (Standard hour allowed x overhead rate) - overhead charged to production = (7500 x 17) - 121000 = $6500 FOH spending variance = Standard hour worked (Actual overhead rate - standard overhead rate) = 7500 ($17 - $15.20) = $13500 5. Adjusting entries to close out the variance account DM spending variance $8,953 CGS $8,953 DM efficiency variance $4,807 CGS $4,807 DL spending variance $11,625 CGS $11,625 DL efficiency variance $7,925 CGS $7,925 FOH volume variance $6,500 CGS $6,500 FOH spending variance $13,500 CGS $13,500 6. CGS T-account DM @ std $150,000 DL @ std $135,000 FOH @ std $114,000 Adjustments to CGS $24,460 Adjusted CGS $423,460
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