JOURNAL ENTRIES FOR MATERIAL, LABOR
, AND FACTORY OVERHEAD Four-Variance Method
Arjuna Manufacturing Company uses standard cost system in its
accounting records. The standard costs for its one product are as
follows:
Materials ……………………………………… 9 kilograms at $ 2.00 = $ 18.00
Direct Labor…………………………………..
2 hours at 10.50 = 21.00
Variable overhead ………………………
2 hours at 3.00 =
6.00
Fixed overhead …………………………..
2 hours at 10.00 = 20.00
Total standard cost …………………….
$ 65.00
Normal capacity is 2,000 direct labor hours per month. Materials, work in
process, and finished goods are recorded in inventory at standard cost. The
following information is taken from last month’s records:
Production …………………………………
Material Purchases ……………………
Materials used in production……..
Direct labor payroll …………………..
Actual overhead ……………………….
900 units
10,000 kilogram at $ 1.95
8,600 kilogram
1,740 hours at $ 11.55
$ 24,700
Required :
Prepare journal entries to record the information provided. Use the twovariance to compute material and labor and the four variance method to
compute overhead variance.
Answer:
Materials (10,000 kg x AQ purchased x $2 SP) …….. $ 20,0000
Materials Purchased Price Variance ……………………..
$
500
$ 19,500
Account Payable(10,000 kg x AQ Purchased x $ 1.95)
Work In Process
(900 units x 9 kg SQ per unit x $2 AP) …..
Materials Quantity Variance …………………………………….
Materials (8,600kg AQ issued x $2 SP) ……………..
$ 16,200
1,000
$17,200
Work In Process (900 units x 2 SH per unit x $ 10.50 SR) $ 18,900
Labor rate Variance ($11.55 AR -$10.50 SR) x 1,740 AH )
1,847
Labor Efficiency Variance
($10.50 SR x (1,740 AH-1,800 SH)
$ 630
Payroll ($11.55 AR x 1,740 AH )
20,097