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Direct Materials, Direct Labor, and Overhead Variances, Journal Entries

Algers Company produces dry fertilizer. At the beginning of the year, Algers had the following standard cost sheet:

Direct materials (5 lbs. @ $2.60)	$13.00
Direct labor (0.75 hr. @ $18.00)	13.50
Fixed overhead (0.75 hr. @ $4.00)	3.00
Variable overhead (0.75 hr. @ $3.00)	2.25
Standard cost per unit	$31.75

Algers computes its overhead rates using practical volume, which is 54,000 units. The actual results for the year are as follows:

1. Units produced: 53,000
2. Direct materials purchased: 274,000 pounds at $2.50 per pound
3. Direct materials used: 270,200 pounds
4. Direct labor: 40,100 hours at $17.95 per hour
5. Fixed overhead: $161,800
6. Variable overhead: $122,000

Required:

1. Compute price and usage variances for direct materials.

MPV	$27,400	Favorable
MUV	$	Unfavorable

2. Compute the direct labor rate and labor efficiency variances.

Labor Rate Variance	$2,005	Favorable
Labor Efficiency Variance	$6,300	Unfavorable

3. Compute the fixed overhead spending and volume variances.

Spending Variance	$.	Favorable
Volume Variance	$.	Unfavorable

4. Compute the variable overhead spending and efficiency variances.

Spending Variance	$.	Unfavorable
Efficiency Variance	$.	Unfavorable

5. Prepare journal entries for the following:

1. The purchase of direct materials
2. The issuance of direct materials to production (Work in Process)
3. The addition of direct labor to Work in Process
4. The addition of overhead to Work in Process
5. The incurrence of actual overhead costs

If an amount box does not require an entry, leave it blank.

a.	Materials
	Direct Materials Price Variance
	Accounts Payable
b.	Work in Process
	Direct Materials Usage Variance
	Materials
c.	Work in Process
	Direct Labor Efficiency Variance
	Direct Labor Rate Variance
	Wages Payable
d.	Work in Process
	Variable Overhead Control
	Fixed Overhead Control
e.	Variable Overhead Control
	Fixed Overhead Control
	Various Accounts

First, close direct materials and direct labor variances:

	Direct Materials Price Variance
	Direct Labor Rate Variance
	Direct Materials Usage Variance
	Direct Labor Efficiency Variance
	Cost of Goods Sold

Second, recognize the overhead variances: If an amount box does not require an entry, leave it blank.

	Fixed Overhead Volume Variance
	Variable Overhead Spending Variance
	Variable Overhead Efficiency Variance
	Fixed Overhead Spending Variance
	Fixed Overhead Control
	Variable Overhead Control

Third, close the overhead variances: Note: Close the variances with a debit balance first. For compound entries, if an amount box does not require an entry, leave it blank.

	Cost of Goods Sold
	Fixed Overhead Volume Variance
	Variable Overhead Spending Variance
	Variable Overhead Efficiency Variance
	Fixed Overhead Spending Variance
	Cost of Goods Sold

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