Question

Heritage Furniture Co. uses a standard cost system. One of the company's most popular products is an oak entertainment center that looks like an old icebox but houses a television, stereo, or other electronic components. The per-unit standard costs of the entertainment center, assuming a "nor- mal" volume of 1,000 units per month, are as follows. $130.00 40.00 Direct materials, 100 board-feet of wood at $1.30 per foot.......... Direct labor, 5 hours at $8.00 per hour ..... Manufacturing overhead (applied at $22 per unit) Fixed ($15,000 - 1,000 units of normal production) ......... Variable ....... Total standard unit cost .............. $15.00 7.00 22.00 $192.00 ced at the following actual unit During July, 800 entertainment centers were scheduled and produced at the following costs. Direct materials, 110 feet at $1.20 per foot ....... ........... $132.00 Direct labor, 5/2 hours at $7.80 per hour. 42.90 Manufacturing overhead, $18,480 - 800 units .... 23.10 Total actual unit cost ......... $198.00 Prepare journal entries to assign manufacturing costs to the work in process inventory account and to record cost variances for July. Use separate entire for (1) direct materials, (2) direct labor, and (3) overhead costs.

Answer 1

HERITAGE FURNITURE COMPANY MPV MQV MATERIALS PRICE VARIANCE Actual Quantity Used x (Standard Price - Actual Price) (800 * 110 FT) * ($1.30 - $1.20) = 88,000 * 0.10 $8,800 FAVORABLE MATERIALS QUANITY VARIANCE - Standard Price x (Standard Quantity - Actual Quantity = $1.30 * [(800 * 100) -(800 * 110)] = $1.30 * (80,000 - 88,000) = $1.30 * -8,000 = $10,400 UNFAVORABLE LABOR RATE VARIANCE = Actual Hours x (Standard Hourly Rate - Actual Hourly Rate) = (5.5 hrs * 800) * ($8.00 - $7.80) = 14,400 hrs * 0.20 = $880 FAVORABLE LABOR EFFICIENCY VARIANCE = Standard Hourly Ratex (Standard Hours - Actual Hours) $8.00 * [(5 800) - (5.50 * 800)] = 8 (4,000 - 4,400) | LRV LEV DU I $ $ 15,000 5600 $ $ 20,600 18,480 2,120 $3,200 UNFAVORABLE Computation of overhead spending variance: Overhead budgeted for 800 units: Fixed Variable (800 units * $7 per unit) Total budgeted overhead Less: Actual overhead for the month Overhead spending variance (favorable) Computation of volume variance: Overhead applied at standard cost ($22 x 800 units) Less: Budgeted overhead (above) Volume variance (unfavorable) GENERAL JOURNAL ENTRIES 31 Work in Process Inventory (at standard) Materials Quantity Variance Materials Price Variance Direct Materials Inventory (actual) To record direct materials used in July. Standard cost (800 units x $130) = $104,000 | Actual cost = $105,600 S 17,600 20,600 (3,000) $ BI July $ $ 104,000 10,400 $ $ 8,800 105,600 July $ $ 32,000 3,200 31 Work in Process Inventory (at standard) Labor Efficiency Variance Labor Rate Variance Direct Labor (actual) To record direct labor used in July. | Standard cost (800 units x $40) = $32,000 Actual cost = $34,320 $ $ 880 34,320 July $ $ 17,600 3,000 31 Work in Process Inventory (at standard) Volume Variance Overhead Spending Variance Manufacturing Overhead (actual) To record overhead costs in July. Standard cost (800 units X $22) = $17,600 Actual cost = $18,480 2,120 18,480 $