Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
P25-2A Solution to additional questions
1. Assume that the actual price for raw materials changed to $2.30 and actual quantity of raw materials used changed to 11,000 units.
Recompute total materials variance and price and quantity variances for materials.
2. Show the impact of the changes above on the income statement.
(a)(1) Total Materials Variance:
(AQ XAP ) minus ( SQ XSP) )
Materials price variance:
(AQ XAP ) minus ( AQ XSP )
Materials quantity variance:
(AQ XSP ) minus ( SQ XSP )
(a)(2) Total Labor Variance:
(AH XAR ) minus ( SH XSR )
Labor Price variance:
Labor quantity variance:
(AH XSR ) minus ( SH XSR )
(b) Total Overhead Variance:
= Actual minus Overhead
Overhead Applied
(c )
Sales revenue $400,000
Cost of goods sold (at standard) 334,500
Gross profit (at standard) 65,500
Variances
Material price $2,200 U
AYALA CORPORATION
Income Statement
For the Month Ended June 30, 2017
P25-6A Journalize and post standard cost entries, and prepare income statement
Jorgensen Corporation uses standard costs with its job order cost accounting system.
In January, an order (Job No. 12) for 1,900 units of Product B was received. The standard
cost of one unit of Product B is as follows.
Direct materials 3 pounds at $1.00 per pound $3.00
Direct labor 1 hour at $8.00 per hour 8.00
Overhead 2 hours (variable $4.00 per machine hour;
fixed $2.25 per machine hour)
12.50
Standard cost per unit $23.50
Normal capacity for the month was 4,200 machine hours. During January, the following
transactions applicable to Job No. 12 occurred.
1. Purchased 6,200 pounds of raw materials on account at $1.05 per pound.
2. Requisitioned 6,200 pounds of raw materials for Job No. 12.
3. Incurred 2,000 hours of direct labor at a rate of $7.80 per hour.
4. Worked 2,000 hours of direct labor on Job No.12.
5. Incurred manufacturing overhead on account $25,000.
6. Applied overhead to Job No. 12 on basis of standard machine hour allowed.
7. Completed Job No. 12.
8. Billed customer for Job No. 12 at a selling price of $65,000.
Instructions
(a) Journalize the transactions.
(b) Post to the job order cost accounts.
(c ) Prepare the entry to recognize the total overhead variance.
(d) Prepare the January 2017 income statement for management. Assume selling and
administrative expenses were $2,000.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .
(a)(1) Value
Value
Value
(a)(2) Value
Value
Value
(a)(3) Value
Value
Value
(a)(4) Value
Value
Value
(a)(5) Value
Value
(a)(6) Value
Value
(a)(7) Value
Value
(a)(8) Value
Value
Account
Account
Account
Account
Account
Account
Account
Account
Account
Account
Account
Account
Account
Account
Account
Account
Account
Account
Account
Account
Value
Value
(b)
Value Value Value Value Value
Value
Value
Value Value Value Value Value
Value Value Value Value
Value
(c ) Value
Value
(d)
Sales revenue Value
Cost of goods sold (at standard) Value
Gross profit (at standard) ?
Variances
Material price Value
Materials quantity Value
Labor price Value
Labor quantity Value
Overhead Value
Total variance - unfavorable ?
Gross profit (actual) ?
Selling and administrative expenses Value
Net income ?
After you have completed the requirements of P25-6A, consider this additional question.
1. Assume that the standard costs changed as follows:
Direct materials 3 pounds at $1.10 per pound $3.30
Direct labor 1 hour at $10.00 per hour 10.00
Overhead 2 hours (variable $4.00 per machine hour;
fixed $2.25 per machine hour)
12.50
Standard cost per unit $25.80
Revise journals entries to reflect these changes and show posting to job order T-accounts.
For the Month Ended January 31, 2017
Work in Process Inventory
Factory Labor
Materials Quantity Variance
Finished Goods Inventory
Manufacturing Overhead
Labor Price Variance
Cost of Goods Sold
Raw Materials Inventory
Materials Price Variance
Labor Quantity Variance
Account
Account
JORGENSEN CORPORATION
Income Statement
Account
Account
P25-6A Solution
(a)(1) 6,200
310
6,510
(a)(4) 15,200
800
16,000
(a)(7) 44,650
44,650
(b)
(1) 6,200 (2) 6,200 (1) 310 (2) 5,700 (7) 44,650
(4) 15,200
(6) 23,750
Work in Process Inventory
Raw Materials Inventory
Materials Price Variance
Work in Process Inventory
Work in Process Inventory (1,900 x $8.00)
Labor Quantity Variance [(2,000 - 1,900) x $8]
Factory Labor
Finished Goods Inventory (1,900 x $23.50)
Raw Materials Inventory (6,200 x $1.00)
Materials Price Variance[6,200 x ($1.05 - $1.00)]
Accounts Payable (6,200 x $1.05)
(c ) 1,250
1,250
(d)
Sales revenue $65,000
Cost of goods sold (at standard) (1,900 x $23.50) 44,650
For the Month Ended January 31, 2017
Overhead Variance ($25,000 - $23,750)
Manufacturing Overhead
JORGENSEN CORPORATION
Income Statement
P25-6A Solution to additional question
1. Assume that the standard costs changed as follows:
Direct materials 3 pounds at $1.10 per pound $3.30
Direct labor 1 hour at $10.00 per hour 10.00
Overhead 2 hours (variable $4.00 per machine hour;
fixed $2.25 per machine hour) 12.50
Standard cost per unit $25.80
Revise journals entries to reflect these changes and show posting to job order T-accounts.
(a)(1) 6,820
310
6,510
(a)(4) 19,000
1,000
20,000
(a)(5) 25,000
25,000
(a)(8) 65,000
65,000
(3) 20,000 (4) 20,000 (2) 550 (7) 49,020 (8) 49,020
Raw Materials Inventory (6,200 x $1.10)
Materials Price Variance[6,200 x ($1.05 - $1.10)]
Accounts Payable (6,200 x $1.05)
Work in Process Inventory (1,900 x $10.00)
Labor Quantity Variance [(2,000 - 1,900) x $10]
Factory Labor
Manufacturing Overhead
Accounts Payable
Accounts Receivable
Sales Revenue
Factory Labor
Materials Quantity Variance
Finished Goods Inventory
Manufacturing Overhead
Labor Price Variance
Cost of Goods Sold
(5) 25,000 (6) 23,750 (3) 4,400 (8) 49,020
(c ) 1,250
1,250
(d)
Sales revenue $65,000
Cost of goods sold (at standard) (1,900 x $25.80) 49,020
For the Month Ended January 31, 2017
Overhead Variance ($25,000 - $23,750)
Manufacturing Overhead
JORGENSEN CORPORATION
Income Statement
CD25 Current Designs
The executive team at Current Designs has gathered to evaluate the company's operations for the last month.
One of the topics on the agenda is the special order from Huegel Hollow, which was presented in CD2. Recall that
Current Designs had a special order to produce a batch of 20 kayaks for a client, and you were asked to determine
the cost of the order and the cost per kayak.
Mike Cichanowski asked the others if the special order caused any particular problems in the production process.
Dave Thill, the production manager, made the following comments: "Since we wanted to complete this order quickly
and make a good first impression on this new customer, we had some of our most experienced type I workers run the
rotomold oven and do the trimming. They were very efficient and were able to complete that part of the manufacturing
process even more quickly than the regular crew. However, the finishing on these kayaks required a different technique
than what we usually use, so our type II workers took a little longer than usual for that part of the process."
Deb Welch, who is in charge of the purchasing function, said, "We had to pay a little more for the polyethylene
powder for this order because the customer wanted a color that we don't usually stock. We also ordered a little extra
since we wanted to make sure that we had enough to allow us to calibrate the equipment. The calibration was a little
tricky, and we used all of the powder that we had purchased. Since the number of kayaks in the order was fairly small,
we were able to use some rope and other parts that were left over from last year's production in the finishing kits.
We've seen a price increase for these components in the last year, so using the parts that we already had in inventory
cut our costs for the finishing kits."
Instructions
(a) Based on the comments above, predict whether each of the following variances will be favorable or unfavorable.
If you don't have enough information to make a prediction, use "NEI" to indicate "Not Enough Information."
(1) Quantity variance for polyethylene powder.
(2) Price variance for polyethylene powder.
(3) Quantity variance for finishing kits.
(4) Price variance for finishing kits
(5) Quantity variance for type I workers.
(6) Price variance for type I workers.
(7) Quantity variance for type II workers.
(8) Price variance for type II workers.
(b) Diane Buswell examined some of the accounting records and reported that Current Designs purchased 1,200 pounds
of powder for this order at a total cost of $2,040. Twenty (20) finishing kits were assembled at a total cost of $3,240.
The payroll records showed that the type I employees worked 38 hours on this project at a total cost of $570. The
type II finishing employees worked 65 hours at a total cost of $796.25. A total of 20 kayaks were produced for this
order.
The standards that had been developed for this model of kayak were used in CD2 and are reproduced here. For
each kayak:
54 pounds of polyethylene powder at $1.50 per pound
1 finishing kit (rope, seat, hardware, etc.) at $170
2 hours of type I labor from people who run the oven and trim the plastic at a standard wage rate of $15 per hour
3 hours of type II labor from people who attach the hatches and seat and other hardware at a standard wage rate
of $12 per hour
Calculate the eight variances that are listed in part (a) of this problem.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .
(a) Based on the comments above, predict whether each of the following variances will be favorable or unfavorable.
If you don't have enough information to make a prediction, use "NEI" to indicate "Not Enough Information."
(1) Quantity variance for polyethylene powder. Response
(2) Price variance for polyethylene powder. Response
(3) Quantity variance for finishing kits. Response
(4) Price variance for finishing kits Response
(5) Quantity variance for type I workers. Response
(6) Price variance for type I workers. Response
(7) Quantity variance for type II workers. Response
(8) Price variance for type II workers. Response
(b) Calculate the eight variances that are listed in part (a) of this problem.
(1) Quantity variance for polyethylene powder.
= (AQ X SP) - (SQ X SP)
= Value - Value
= ? - ?
= ?
(2) Price variance for polyethylene powder.
= (AQ X AP) - (AQ X SP)
= Value - Value
= ? - ?
= ?
(3) Quantity variance for finishing kits.
= (AQ X SP) - (SQ X SP)
= Value - Value
= ? - ?
= ?
(4) Price variance for finishing kits
= (AQ X AP) - (AQ X SP)
= Value - Value
= ? - ?
= ?
(5) Quantity variance for type I workers.
= (AH X SR) - (SH X SR)
= Value - Value
= ? - ?
= ?
(6) Price variance for type I workers.
= (AH X AR) - (AH X SR)
= Value - Value
= ? - ?
= ?
(7) Quantity variance for type II workers.
= (AH X SR) - (SH X SR)
= Value - Value
= ? - ?
= ?
(8) Price variance for type II workers. (Round to 2 decimal points)
= (AH X AR) - (AH X SR)
= Value - Value
= ? - ?
= ?
After you have completed the requirements of CD25, consider this additional question.
1. Assume the standard price for polyethylene powder and type I labor changed to $1.60 and
$16 respectively. Revise variance calculations to reflect these changes.
CD25 Solution
(a) Based on the comments above, predict whether each of the following variances will be favorable or unfavorable.
If you don't have enough information to make a prediction, use "NEI" to indicate "Not Enough Information."
(1) Quantity variance for polyethylene powder. Unfavorable
(2) Price variance for polyethylene powder. Unfavorable
(3) Quantity variance for finishing kits. NEI
(b) Calculate the eight variances that are listed in part (a) of this problem.
(1) Quantity variance for polyethylene powder.
= (AQ X SP) - (SQ X SP)
= 1,200 x $1.50 - (54 x20) x $1.50
= $1,800 - $1,620
=$180 U
(2) Price variance for polyethylene powder.
= (AQ X AP) - (AQ X SP)
(3) Quantity variance for finishing kits.
= (AQ X SP) - (SQ X SP)
= 20 x $170 - 20 x $170
(4) Price variance for finishing kits
= (AQ X AP) - (AQ X SP)
= 20 x ($3,240 ÷20) - 20 x $170
(5) Quantity variance for type I workers.
= (AH X SR) - (SH X SR)
= 38 x $15 - (20 x 2) x $15
(6) Price variance for type I workers.
= (AH X AR) - (AH X SR)
= 38 x ( $570 ÷ 38) - 38 x $15
= 65 x $12 - (20 x 3) x $12
(8) Price variance for type II workers. (Round to 2 decimal points)
= (AH X AR) - (AH X SR)
= 65 x ($796.25 ÷ 65) - 65 x $12
CD25 Solution to additional question
1. Assume the standard price for polyethylene powder and type I labor changed to $1.60 and
$16 respectively. Revise variance calculations to reflect these changes.
(a) Based on the comments above, predict whether each of the following variances will be favorable or unfavorable.
If you don't have enough information to make a prediction, use "NEI" to indicate "Not Enough Information."
(1) Quantity variance for polyethylene powder. Unfavorable
(2) Price variance for polyethylene powder. Unfavorable
(3) Quantity variance for finishing kits. NEI
(b) Calculate the eight variances that are listed in part (a) of this problem.
(1) Quantity variance for polyethylene powder.
= (AQ X SP) - (SQ X SP)
=1,200 x $1.60 -
(54 x20) x $1.60
(2) Price variance for polyethylene powder.
= (AQ X AP) - (AQ X SP)
=
1,200 x ($2,040 ÷1200
-1,200 x $1.60
(3) Quantity variance for finishing kits.
= (AQ X SP) - (SQ X SP)
= 20 x $170 - 20 x $170
(4) Price variance for finishing kits
= (AQ X AP) - (AQ X SP)
= 20 x ($3,240 ÷20) - 20 x $170
= $3,240 - $3,400
=$160 F
(5) Quantity variance for type I workers.
= (AH X SR) - (SH X SR)
=38 x $16 -(20 x 2) x $16
(6) Price variance for type I workers.
= (AH X AR) - (AH X SR)
= 38 x ( $570 ÷ 38) - 38 x $16
(7) Quantity variance for type II workers.
= (AH X SR) - (SH X SR)
= 65 x $12 - (20 x 3) x $12
