12SE - Horngren'S Financial And Managerial Accounting

Question

Journalizing materials entries

The following direct materials variance analysis was performed for Moore.

Requirements 

1. Record Moore’s direct materials journal entries. Assume purchases were made on the account.

2. Explain what management will do with this variance information        

Step-by-Step Solution

Answer

1. Both the variances are unfavorable; therefore, they are debited in the journal entries. 
2. Variance information help in the controlling of the business entity.

Step 1: Definition of Variance Analysis

The analysis used to determine the difference between the actual activity level and the standard level of activity is known as variance analysis. 

Step 2: Direct material journal entries

Date	Accounts and Explanation	Debit $	Credit $
1	Raw material inventory	$3,160
	Direct material cost variance	$2,370
	Account payable		$5,530
	(To record the purchase of direct material)
2	Work-in-process inventory	$2,880
	Direct material efficiency variance	$280
	Raw material inventory		$3,160
	(To record the used direct material)
		$8,690	$8,690

Step 3: Use of variance information

With the variance information, the management will determine whether they acquire the same material at lower rates equal to standard cost or lower than the standard cost. 

The business entity will also try to identify the factor in which higher material units are used than established standards.