GB519 MEASUREMENT AND DECISION MAKING

GB519 Measurement and Decision Making
Exercise 14-56 Page 629
Exercise 14-56
Boron Chemical Company produces a synthetic resin that is used in the automotive
industry. The company uses a standard cost system. For each gallon of output, the
following direct manufacturing costs are anticipated:
Direct labor:
2 hours
Direct Materials: 2 gallons

$25/hr
$10/gal

=$50.00
=$20.00

During December of 2010, Boron produced a total of 2,500 gallons of output and
incurred the following direct manufacturing costs:
Direct labor:
4,900 hours worked @ an average wage rate of $19.50/hr
Direct Materials: Purchased: 6,000 gallons@ $10.45/gal
Used in production: 5,100 gallons
Boron recordes price variances for materials at the time of purchase
Required – give journal entries for the following events and transactions:
1. Purchase, on credit, of direct materials
Actual Cost
6,000 @ $10.45/gal
Standard Cost 6,000 @ $10.00/gal
6000 gallons @ $10 a gallon = $60,000
Price Variance
$2,700
Accounts Payable $62,700
Open account recording will state that direct materials = 6,000 gallons
at $10.00 per gallon wil equal $10.45
2. Direct materials issued to production.
Actual Cost
5,100 gallons
Standard Cost 5,000 gallons (2 per unit) @ $10.00/gallon
2,500 x 2 gallons x $10.00 per gallon = $50,000
Variance
$1,000
Materials $5,100 gallons x $10.00/gallon = $51,000
Materials cost is $20/unit for full production of the period at 2,500 units
3. Direct labor cost of units completed this period.
Actual Cost
4,900 hours @ $19.50/hr
Standard Cost 5,000 hours (2hrs/unit) @ $25.00/hr
2,500 x 2 hours x $25.00/hr = $125,000
Variance = $5.50/hr x 4,900 hours
= $26,950
Efficiency Variance = 100 hrs x $25.00/hr = $2,500
Wages (4,900 hrs x $19.50/hr
= $95,550
Direct Labor cost s ($50/unit) for the completed production (2,500 units)
and the actual labor costs during the period
4. Direct manufacturing cost (direct labor plus direct materials)
of units completed and transferred to Finished Goods Inventory
Actual Cost
2,500 units
Standard Cost 2,500 units @ $10×2+$25×2 = $70.00
Inventory
$70.00/unit x 2,000 units
= $175,000
Direct manufacturing costs are recorded using cost of goods
manufactured for the period.
5. Sale, for $150.00 per gallon, of 2,000 gallons of output (hint:
you will need two journal entries here)
Actual Cost
2000 gallons
Standard Cost 2000 gallons @ $70.00/unit
$70 x 2,000 units = $140,000
Inventory
= $140,000
Direct manufacturing cost of cost of good sold for the period.
Accounts Receivable = $150/unit x 2,000 units
= $300,000
Sales Revenue = $300,000
Sales revenue is recorded using accounts receivable.

Dana Revier
GB519 Measurement and Decision Making
Problem 15-58 Page 690
Problem 15-58
Four Variance Analysis
Able Control Company, which manufactures electrical switches, uses
a standard cost system and carries all inventory and standard cost.
The standard factory overhead cost per switch is based on direct
labor hours
Variable Overhead
5 hours
$8.00/hr
Fixed Overhead
5 hours
$12.00/hr
Total standard overhead cost per unit produced
$100.00
**based on practical capacity of 300,000 direct labor hours per month
The following information is for the month of October:
– The company produced 56,000 switches, although 60,000 switches
were scheduled to be produced
– The company worked 275,000 direct labor hours ata total cost of
$2,550,000
– Variable overhead costs were $2,340,000
– Fixed overhead costs were $3,750,000
The production manager argued during th elast performance review tha the company
should use more up-to-date base for charging factory overhead costs to production.
She commented that her factory had been highly automated in the last two years
and as a result now has hardly any direction labor. The factory hires only highly
skilled workers to set up productionruns and to do periodic adjustments of
machinery whenever the need arises
Required
1. Compute the following for Able Control Company:
a. The fixed overhead spending variance for October