Slick Corporation is a small producer of synthetic motor oil.During May, the company produced 5,000 cases of lubricant. Eachcase contains 12 quarts of synthetic oil. To achieve this level ofproduction, Slick purchased and used 16,500 gallons of directmaterials at a cost of $20,359. It also incurred average directlabor costs of $14 per hour for the 4,031 hours worked in May byits production personnel. Manufacturing overhead for the monthtotaled $9,019, of which $2,200 was considered fixed. Slick'sstandard cost information for each case of synthetic motor oil isas 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 |
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Required:
a. Compute the materials price and quantityvariances.
b. Compute the labor rate and efficiencyvariances.
c. Compute the manufacturing overhead spendingand 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 inProcess.
4. Transfer the cost of the 5,000 cases of synthetic motor oilproduced in May to Finished Goods.
5. Close any over- or underapplied overhead to cost of goodssold.
