JOURNAL ENTRIES AND INCOME STATEMENT
The following information concern Samudera Manufacturing
Company, which manufactures a single product called Westco.
The standard cost card for Westco follows:
Material A: 1 unit at $ 14 …………………………………
Material B: 6 units at $ 2 …………………………………
Direct labor: ½ hour at $ 10 ………………………………
Variable factory : 1/3 machine hour at $3 …………..
Fixed factory overhead : 1/3 machine hour at $24
$ 14
12
5
1
8
$40
Other information available for the ending December 21, 20A
includes the following:
a. Materials price variances are recorded when the materials
are purchased. Transaction related to material are as
follows:
Material
Beginning Inventory Purchased
A ……………. … 1,200 units at $4 15,000 units at $13
B ……………….. 6,300 units at $ 2 80,000 units at $ 3
Issued
14,200 units
82,300 units
b. Beginning work in process contained 6,000 units of
Westco, complete with respect to material A, 2/3
Complete with respect to material B, ½ complete with
respect to direct labor, and 2/3 complete with respect to
machining.
c. Ending work in process contains 5,000 units of Westco,
complete with respect to material A, ½ complete with
respect to material B, ¼ complete with respect to direct
labor, and ½ complete with respect to machining.
d. 15,000 unit of Westco were complete and transferred to
finished goods during the period. There are 4,000 units of
Westco in finished goods at the beginning of the period
and 3,600 units at the end of the period. Westco sells for
$60 a unit.
e. During the period, 6,500 unit direct labor hours were
worked at a total cost of $ 71,500.
f. Production machining time totaled 4,400 hours. The
standard factory overhead rate is determined on the basis
of a normal operating capacity of 5,000 machine hours.
g. Actual factory overhead for the period totaled $ 122,000
h. Marketing and administrative expenses for the period
totaled $120,000, and the effective income tax rate is
30%.
Required:
1. Prepare journal entries to record the purchase and issue
of material, the production charge for labor and factory
overhead, and the closing of the two factory overhead
account (Factory Overhead Control and Applied Factory
Overhead), along with the appropriate standard cost
variance. Use the three-variance method for factory
overhead.
2. Prepare the journal entry to close the variance accounts
into Income Summary.
3. Prepare an income statement for the year ending
December 31,20A.
Answer:
(1).
Unit completed and transferred out 15,000 15,000 15,000 15,000
Less beginning inventory (all units) 6,000
6,000 6,000
6,000
Started and completed this period 9,000
9,000 9,000
9,000
Add work this period in inventories:
Beginning inventory
0
2,000 3,000
2,000
Ending inventory
5,000
2,500 1,250
2,500
Equivalent units of Westco
14,000 13,500 13,250 13,500
Standard quantity per unit Westco
x1
x6
x 12 x 1/3
Standard quantity allowed
14,000
81,000 6,625 4,500
Materials (15,000 x $4)+(80,000 x 2) …………….… $ 370,000
Materials purchased Price Variance …………………….
65,000
Account Payable(15,000 x $13)+(80,000 x $3) …..
$ 435,000
Work In Process (14,000 X $14)+(81,000 x $2).. $ 358,000
Materials Quantity Variance ………………………………..
5,400
Materials (14,200 x $14)+(82,300X$2) ………..
$ 363,400
Work In Process (6,625 x $ 10) ………………………… $
Labor Rate Variance (6,500 x($10-$11))
66,250
6,500
Labor Efficiency Variance (6,625 -6,500)x $10
Payroll (6,500 x $ 11)
Work In Process (4,500 x $27) ………………….
Applied Factory Overhead …………………….
$ 1,250
$ 71,500
$ 121,500
$ 121,500
Applied Factory Overhead …………………………
$ 121,500
Volume Variance (5,000-4,500)x$24) ………
12,000
Spending Variance ……………………………….
$ 11,200
Variable Efficiency Variance (4,500-4,400) x $3)
300
Factory Overhead Control …………………..
122,000
(2).
Labor Efficiency Variance …………………………...
Spending Variance ………………………………………..
Variable Efficiency Variance …………………………
Income Summary …………………………………………
Materials Purchase Price Variance ………….
Materials Quantity Variance …………………..
Labor Rate Variance ……………………………….
Volume Variance ……………………………………
(3).
$ 1,250
11,200
300
76,150
$ 65,000
5,400
6,500
12,000
Samudera Manufacturing Company
Income Statement
For Year Ended December 31, 20A
Sales (4,000 +15,000-3,600)x $60 )..
COGS ( 15,400 x $40 ) ……………………
Gross Profit at standard …………………
$ 924,000
616,000
308,000
Adjustment for standard cost variances:
Materials purchase price variance …. $ 65,000
Materials quantity variance …………..
5,400
Labor rate variance ……………………..
6,500
Labor efficiency variance ………………
(1,250)
Spending variance ……………………….
(11,200)
Variable efficiency variance …………..
(300)
Volume variance ………………………….
12,000
76,150
Adjusted gross profit ……………………..
$ 231,850
Less commercial expenses ……………..
120,000
Income before income tax ……………..
111,850
Income tax expense (30% x $111,850)
33,555
Net Income ………………………………..
$ 78,295