Solution – Standard Costing

Materials Price Variance = (AP – SP) x AQP

= (125 – 120) x 10,000

= 5 x 10,000

= 50,000 unfavorable (UF)

Materials Quantity Variance = (AQ – SQ) x SP

= (8,400 – *8,000) x 120

= 400 x 120

= 48,000 unfavorable

*8,000 = 2,000 units x 4 pcs of woods

Total Materials Variance: 42,000 UF + 48,000 UF = 98,000 UF

Labor Rate Variance = (AR – SR) x AH

= (62 – 60) x 19,000

= 2 x 19,000

= 38,000 Unfavorable (UF)

Labor Efficiency Variance = (AH – SH) x SR

= (19,000 – *20,000) x 60

= 1,000 x 60

= 60,000 Favorable (F)

*20,000 = 2,000 units x 10 hrs.

Total Labor Variance = 38,000 UF – 62,000 F = 22,000 F

Controllable OH Variance = Actual FOH – Budgeted FOH based on standard hours

= (798,000 + 76,000) – (2,000 x 10 hrs. x 40) + (60,000)

= 874,000 – (800,000 + 60,000)

= 874,000 – 860,000
 = 14,000 Unfavorable (UF)

OH Efficiency Variance = Budgeted FOH based on standard hours – Standard FOH

= 860,000 – (20,000 x 40) + (*4 x 20,000)

= 860,000 – (800,000 + 80,000)

= 860,000 – 880,000

= 20,000 F

*P 60,000/ 15,000 = P 4/ hr.

Total OH Variance = 14,000UF + 20,000F = 6,000F

JOURNAL ENTRIES:

1. RMI (10,000 x 120) 1,200,000

Materials price variance 50,000
AP 1,250,000

2. Work in process (8,000 x 120) 960,000

Materials quantity variance 48,000
RMI (8,400 x 120) 1,008,000

3. Payroll 1,178,000
Accrued payroll 1,178,000

4. Work in process (20,000 hrs. x P 60) 1,200,000

Labor rate variance 38,000
Labor efficiency variance 60,000
Payroll 1,178,000

5. Factory overhead control – variable 798,000

Factory overhead control – fixed 76,000
Various accounts 874,000

6. Work in process (20,000 x 40) 800,000

Applied factory overhead – variable 800,000

7. Work in process (20,000 x 4) 80,000

Applied factory overhead – fixed 80,000

8. Applied FOH 880,000

Controllable variance 14,000
FOH control 874,000
 Volume variance 20,000

CLOSING ENTRIES:

9. Cost of goods sold 70,000

Labor efficiency variance 60,000
Volume variance 20,000
Materials price variance 50,000
Material quantity variance 48,000
Labor rate variance 38,000
Controllable variance 14,000

INCOME STATEMENT:

Sales 4,600,000
COGS (2,760,000 + 70,000) 2,830,000
Gross profit 1,770,000
SE 620,000
AE 200,000
Income tax 285,000
Net income after tax 665,000