Question

Butrico Manufacturing Corporation uses a standard cost system, records materials price variances when direct materials are purchased, and prorates all variances at year-end. Variances associated with direct materials are prorated based on the balances of direct materials in the appropriate accounts, and variances associated with direct labor and manufacturing overhead are prorated to Finished Goods Inventory and to Cost of Goods Sold (CGS) on the basis of the relative direct labor cost in these accounts at year-end.

The following information is for the year ended December 31:

The company had no beginning inventories and no ending Work-in-Process (WIP) Inventory. It applies manufacturing overhead at 80% of standard direct labor cost.

Finished goods inventory at 12/31:                                       

Direct materials $             85,900

Direct labor                      130,300              

Applied manufacturing overhead                             104,800              

Direct materials inventory at 12/31                        65,400

Cost of goods sold for the year ended 12/31:                               

Direct materials $             354,100              

Direct labor                      741,100              

Applied manufacturing overhead                             592,900              

Direct materials price variance (unfavorable)                   11,600

Direct materials usage variance (favorable)                       15,400

Direct labor rate variance (unfavorable)                19,800

Direct labor efficiency variance (favorable)                       5,700   

Actual manufacturing overhead incurred                             691,900              

3. Compute the total amount of direct labor cost in the Finished Goods Inventory at December 31, after all variances have been prorated.

Answer 1