Slick Corporation is a small producer of synthetic motor oil. During May, the co
ID: 2599043 • Letter: S
Question
Slick Corporation is a small producer of synthetic motor oil. During May, the company produced 5,000 cases of lubricant. Each case contains 12 quarts of synthetic oil. To achieve this level of production, Slick purchased and used 16,500 gallons of direct materials at a cost of $20,682. It also incurred average direct labor costs of $14 per hour for the 4,098 hours worked in May by its production personnel. Manufacturing overhead for the month totaled $9,418, of which $2,200 was considered fixed. Slick's standard cost information for each case of synthetic motor oil is as follows
Direct materials standard price
$
1.30
per gallon
Standard quantity allowed per case
3.25
gallons
Direct labor standard rate
$
16
per hour
Standard hours allowed per case
0.75
direct labor hours
Fixed overhead budgeted
$
2,600
per month
Normal level of production
5,200
cases per month
Variable overhead application rate
$
1.50
per case
Fixed overhead application rate ($2,600 ÷ 5,200 cases)
0.50
per case
Total overhead application rate
$
2.00
per case
Required:
a. Compute the materials price and quantity variances.
b. Compute the labor rate and efficiency variances.
c. Compute the manufacturing overhead spending and volume variances.
d. Prepare the journal entries to:
1. Charge materials (at standard) to Work in Process.
2. Charge direct labor (at standard) to Work in Process.
3. Charge manufacturing overhead (at standard) to Work in Process.
4. Transfer the cost of the 5,000 cases of synthetic motor oil produced in May to Finished Goods.
5. Close any over- or underapplied overhead to cost of goods sold.
A.
Compute the materials price and quantity variances. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance). Do not round intermediate calculations and round your final answers to the nearest whole dollar amount.)
B.
Compute the labor rate and efficiency variances. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance)
C.
Compute the manufacturing overhead spending and volume variances. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance)).
D.
Prepare the journal entries to:
1. Charge materials (at standard) to Work in Process.
2. Charge direct labor (at standard) to Work in Process.
3. Charge manufacturing overhead (at standard) to Work in Process.
4. Transfer the cost of the 5,000 cases of synthetic motor oil produced in May to Finished Goods.
5. Close any over- or underapplied overhead to cost of goods sold. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.
Complete this question by entering your answers in the tabs below.
Required A - Compute the materials price and quantity variances. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance). Do not round intermediate calculations and round your final answers to the nearest whole dollar amount.)
Required B- Compute the labor rate and efficiency variances. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance)
Required C - Compute the manufacturing overhead spending and volume variances. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance)).
Prepare the journal entries to:
1. Charge materials (at standard) to Work in Process.
2. Charge direct labor (at standard) to Work in Process.
3. Charge manufacturing overhead (at standard) to Work in Process.
4. Transfer the cost of the 5,000 cases of synthetic motor oil produced in May to Finished Goods.
5. Close any over- or underapplied overhead to cost of goods sold. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
1. Record the cost of direct materials charged to production.
2. Record the Cost of direct labor charged to production
3 Record entry to apply overhead to production
4 Record entry to transfer 5,000 cases to finshed goods in May
5.
Record entry to close overhead variances to cost of goods sold.
Prepare the journal entries to:
1. Charge materials (at standard) to Work in Process.
2. Charge direct labor (at standard) to Work in Process.
3. Charge manufacturing overhead (at standard) to Work in Process.
4. Transfer the cost of the 5,000 cases of synthetic motor oil produced in May to Finished Goods.
5. Close any over- or underapplied overhead to cost of goods sold. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Direct materials standard price
$
1.30
per gallon
Standard quantity allowed per case
3.25
gallons
Direct labor standard rate
$
16
per hour
Standard hours allowed per case
0.75
direct labor hours
Fixed overhead budgeted
$
2,600
per month
Normal level of production
5,200
cases per month
Variable overhead application rate
$
1.50
per case
Fixed overhead application rate ($2,600 ÷ 5,200 cases)
0.50
per case
Total overhead application rate
$
2.00
per case
Explanation / Answer
PART A
Materials price variance = AQ *(SP-AP) = 16500*(1.30-(20682/16500)) = 768 F
Materials quantity variance = SP*(SQ-AQ) = 1.30*((5000*3.25)-16500) = 325 U
PART B
Labor rate variance = AH*(SR-AR) = 4098*(16-14) = 8196 F
Labor efficiency variance = SR*(SH-AH) = 16*((5000*0.75)-4098) = 5568 U
PART C
Overhead Spending Variance = Standard Overhead Costs Allowed – Actual overhead costs incurred = (2600+(5000*1.50))- (2200+7218)-(2600+(5000*1.50)) = 682 F
Overhead volume variance = Standard Overhead Costs Allowed – overhead cost applied = (2600+(5000*1.50))-(5000*2) = 100 U
PART D
(1)
Work in Process Inventory (at standard cost) Dr ……………
21,125
*
Materials Quantity Variance (unfavorable) Dr. …………………
325
Materials Price Variance (favorable) Cr.……………………………
768
Direct Materials Inventory (at actual cost) Cr. ……………………
20682
To record the cost of direct materials charged to production.
(5000*3.25*1.30) =21125
(2)
Work in Process Inventory (at standard cost) Dr.……………
60,000
*
Labor Efficiency Variance (unfavorable) Dr.…………………………
5568
Labor Rate Variance (favorable) Cr. …………………………
8196
Direct Labor (at actual cost) Cr. ……………………………
57372
To record the cost of direct labor charged to production.
*(5000*0.75*16) = 60000
(3)
Work in Process Inventory (at standard cost) Dr. ………………….
10,000
Overhead Volume Variance (unfavorable) Dr. …………………
100
Overhead Spending Variance (favorable) Cr.……………………
682
Manufacturing Overhead (at actual cost) Cr.………………………
9418
To apply overhead to production.
(4)
Finished Goods Inventory (at standard cost) Dr.…………
91,125
Work in Process Inventory (at standard cost) Cr.……………………
91,125*
To transfer 5,000 cases to finished goods in May.
($21,125 + $60,000 + $10,000) = 91125
(5)
Overhead Spending Variance (favorable) Dr.…………………
682
Overhead Volume Variance (unfavorable) Cr.……………………………
100
Cost of Goods Sold Cr. …………………………………………………….
582
To close overhead variances to Cost of Goods Sold.
(1)
Work in Process Inventory (at standard cost) Dr ……………
21,125
*
Materials Quantity Variance (unfavorable) Dr. …………………
325
Materials Price Variance (favorable) Cr.……………………………
768
Direct Materials Inventory (at actual cost) Cr. ……………………
20682
To record the cost of direct materials charged to production.
(5000*3.25*1.30) =21125
(2)
Work in Process Inventory (at standard cost) Dr.……………
60,000
*
Labor Efficiency Variance (unfavorable) Dr.…………………………
5568
Labor Rate Variance (favorable) Cr. …………………………
8196
Direct Labor (at actual cost) Cr. ……………………………
57372
To record the cost of direct labor charged to production.
*(5000*0.75*16) = 60000
(3)
Work in Process Inventory (at standard cost) Dr. ………………….
10,000
Overhead Volume Variance (unfavorable) Dr. …………………
100
Overhead Spending Variance (favorable) Cr.……………………
682
Manufacturing Overhead (at actual cost) Cr.………………………
9418
To apply overhead to production.
(4)
Finished Goods Inventory (at standard cost) Dr.…………
91,125
Work in Process Inventory (at standard cost) Cr.……………………
91,125*
To transfer 5,000 cases to finished goods in May.
($21,125 + $60,000 + $10,000) = 91125
(5)
Overhead Spending Variance (favorable) Dr.…………………
682
Overhead Volume Variance (unfavorable) Cr.……………………………
100
Cost of Goods Sold Cr. …………………………………………………….
582
To close overhead variances to Cost of Goods Sold.
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