23E - Horngren'S Financial And Managerial Accounting

Question

Marsh Company uses a standard cost system and reports the following information for 2018: 

Standards: 

3 yards of cloth per unit at \(1.05 per yard 

2 direct labor hours per unit at \)10.50 per hour 

Overhead allocated at \(5.00 per direct labor hour 

Actual: 

2,600 yards of cloth were purchased at \)1.10 per yard 

Employees worked 1,800 hours and were paid \(10.00 per hour 

Actual variable overhead was \)1,700 

Actual fixed overhead was \(7,300

Direct materials cost variance \) 130 U 

Direct materials efficiency variance 420 F 

Direct labor cost variance 900 F 

Direct labor efficiency variance 2,100 F 

Variable overhead cost variance 1,500 U 

Variable overhead efficiency variance 1,500 F 

Fixed overhead cost variance 600 U 

Fixed overhead volume variance 1,600 F 

Marsh produced 1,000 units of finished product in 2018. Record the journal entries to record direct materials, direct labor, variable overhead, and fixed overhead, assuming all expenditures were on account and there were no beginning or ending balances in the inventory accounts (all materials purchased were used in production, and all goods produced were sold). Record the journal entries to record the transfer to Finished Goods Inventory and Cost of Goods Sold (omit the journal entry for Sales Revenue). Adjust the Manufacturing Overhead account

Step-by-Step Solution

Answer

The required journal entries are passed as per the details provided in the question.

Computation of the standard cost

Standard Cost Card
Inputs	Standard Quantity	Standard Price ($)	Standard Cost per unit ($)
Direct Material	3	1.05	3.15
Direct Labor	2	10.50	21.00
Variable Manufacturing Overhead	2	5.00	10.00
Total standard cost per unit			34.15

$\begin{array}{c}Standard Cost=Number ofunits\times Total standard cost per unit\\ \mathbf{=}\mathbf{1}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{34}\mathbf{.}\mathbf{15}\\ =\$34,150\end{array}$

Preparation of actual cost card

Actual Cost Card
Inputs	Standard Quantity	Standard Price ($)	Standard Cost per unit ($)
Direct Material	2,600	1.10	2,860
Direct Labor	1,800	10.00	18,0000
Actual Variable Overhead			1,700
Actual Fixed Overhead			7,300
Total standard cost			29,860
Actual cost per unit	29,860/1,000	29.86

Journal Entries

Journal Entry
Date	Particulars	Debit ($)	Credit ($)
1	Work In Progress Inventory	3,150
	Direct Material Cost Variance	130
	Direct Material Efficiency		420
	Accounts Payable		2,860
	(Direct Material used for production)
2	Work in Progress	21,000
	Direct Labor Cost Variance		900
	Direct Labor Efficiency variance		2,100
	Direct Labor		18,000
	(Direct labor cost incurred)
3	Manufacturing Overhead	9,000
	Various Accounts (1,700+7,300)		9,000
	(Manufacturing cost overhead cost incurred)
4	Work in Progress	10,000
	Manufacturing Overhead		10,000
	(Manufacturing cost allocated)
5	Finished Goods	34,150
	Work in Progress		34,150
	(WIP transferred to finished goods)
6	Cost of goods sold	34,150
	Finished Goods		34,150
	(All the finished goods are sold)
7	Variable Overhead cost variance	1,500
	Fixed Overhead Cost Variance	600
	Manufacturing Overhead	1,000
	Variable Overhead Efficiency Variance		1,500
	Fixed Overhead Volume Variance		1,600
	(Manufacturing overhead adjusted)