Question

Grainger Company has established the following standard variable costs for a unit of finished product:

            Direct materials: 2.0 lbs. @ $4.00 per lb.       $ 8.00

            Direct labor: 1.5 hrs. @ $14.00 per hr.           21.00

            Variable overhead: 1.5 hrs. @ $20 per hr.      30.00

The following occurred during the year:

            Actual production: 32,000 completed units.

            Direct materials purchased: 70,000 lbs. at $3.82 per lb.

            Direct materials requisitioned into production; 66,000 lbs.

            Actual direct labor cost incurred: 51,000 hrs. at $12.60 per hr.

The journal entry to record direct labor under a standard cost system includes:

	a.	A debit to Labor Rate Variance of $71,400.
	b.	A credit to Labor Rate Variance of $71,400.
	c.	A debit to Work in Progress of $672,000.
	d.	Both b and c.

The journal entry to record the use of materials in production under a standard cost system is:

	a.	Work in Progress        280,000             Materials Price Variance        12,600             Accounts Payable                    267,400
	b.	Work in Progress 256,000 Materials Quantity Variance    8,000             Materials 264,000
	c.	Work in Progress             256,000             Materials                                 256,000
	d.	Work in Progress        267,400             Materials                                 267,400

The journal entry to record the purchase of materials under a standard cost system is:

	a.	Materials                                 267,400             Accounts Payable                         267,400
	b.	Materials                                 280,000             Materials Price Variance              12,600             Accounts Payable                         267,400
	c.	Materials                                 267,400 Materials Price Variance    12,600             Accounts Payable                         280,000
	d.	Materials                                 280,000             Accounts Payable                         280,000

The purchase of poor quality materials may cause a favorable materials price variance and an unfavorable labor

efficiency variance due to the extra effort required to work with inferior materials in the production process.

True

False

Within the relevant range, fixed cost per unit remains constant as the production level changes; the amount of variable

cost per unit changes with the production level.

True

False

Although budgeting is often perceived as a mechanical number-crunching task for accountants, it is an important

management tool that most (if not all) successful businesses utilize to a great extent to facilitate planning and control

functions.

True

False

Answer 1

Question 1. Solution:

Journal entry would we :

Work in process Dr.    (32,000*1.5*$14.00)	$672,000
Labor rate variance Cr. [51,000*($14-12.60) ]		$71,400
Wages payable Cr.		$600,600

Thus, answer is Option d. Both b. and c.

Question: 2 solution:

The entry would be:

Work in process (32,000*2*$4.00)	$256,000
Materials		$256,000

Thus, option c. is the correct answer.

Rest cost of materials in Work-in process would be adjusted through variances.

Question : 3

Solution: Journal entry to purchase materials would be as follows:

Materials (70,000*$3.82)	$267,400
Accounts Payable		$267,400

Thus, option a. is the correct answer.