GB519: Measurement and Decision Making unit 5

GB519 Measurement and Decision Making

Exercise 14-56 Page 629

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Exercise 14-56

Boron Chemical Company produces a synthetic resin that is used in the automotive

industry. The company uses a standard cost system. For each gallon of output, the

following direct manufacturing costs are anticipated:

Direct labor:

2 hours

Direct Materials: 2 gallons





During December of 2010, Boron produced a total of 2,500 gallons of output and

incurred the following direct manufacturing costs:

Direct labor:

4,900 hours worked @ an average wage rate of $19.50/hr

Direct Materials: Purchased: 6,000 gallons@ $10.45/gal

Used in production: 5,100 gallons

Boron recordes price variances for materials at the time of purchase

Required – give journal entries for the following events and transactions:

1. Purchase, on credit, of direct materials

Actual Cost

6,000 @ $10.45/gal

Standard Cost 6,000 @ $10.00/gal

6000 gallons @ $10 a gallon = $60,000

Price Variance


Accounts Payable $62,700

Open account recording will state that direct materials = 6,000 gallons

at $10.00 per gallon wil equal $10.45

2. Direct materials issued to production.

Actual Cost

5,100 gallons

Standard Cost 5,000 gallons (2 per unit) @ $10.00/gallon

2,500 x 2 gallons x $10.00 per gallon = $50,000



Materials $5,100 gallons x $10.00/gallon = $51,000

Materials cost is $20/unit for full production of the period at 2,500 units

3. Direct labor cost of units completed this period.

Actual Cost

4,900 hours @ $19.50/hr

Standard Cost 5,000 hours (2hrs/unit) @ $25.00/hr

2,500 x 2 hours x $25.00/hr = $125,000

Variance = $5.50/hr x 4,900 hours

= $26,950

Efficiency Variance = 100 hrs x $25.00/hr = $2,500

Wages (4,900 hrs x $19.50/hr

= $95,550

Direct Labor cost s ($50/unit) for the completed production (2,500 units)

and the actual labor costs during the period

4. Direct manufacturing cost (direct labor plus direct materials)

of units completed and transferred to Finished Goods Inventory

Actual Cost

2,500 units

Standard Cost 2,500 units @ $10×2+$25×2 = $70.00


$70.00/unit x 2,000 units

= $175,000

Direct manufacturing costs are recorded using cost of goods

manufactured for the period.

5. Sale, for $150.00 per gallon, of 2,000 gallons of output (hint:

you will need two journal entries here)

Actual Cost

2000 gallons

Standard Cost 2000 gallons @ $70.00/unit

$70 x 2,000 units = $140,000


= $140,000

Direct manufacturing cost of cost of good sold for the period.

Accounts Receivable = $150/unit x 2,000 units

= $300,000

Sales Revenue = $300,000

Sales revenue is recorded using accounts receivable.

Dana Revier

GB519 Measurement and Decision Making

Problem 15-58 Page 690

Problem 15-58

Four Variance Analysis

Able Control Company, which manufactures electrical switches, uses

a standard cost system and carries all inventory and standard cost.

The standard factory overhead cost per switch is based on direct

labor hours

Variable Overhead

5 hours


Fixed Overhead

5 hours


Total standard overhead cost per unit produced


**based on practical capacity of 300,000 direct labor hours per month

The following information is for the month of October:

– The company produced 56,000 switches, although 60,000 switches

were scheduled to be produced

– The company worked 275,000 direct labor hours ata total cost of


– Variable overhead costs were $2,340,000

– Fixed overhead costs were $3,750,000

The production manager argued during th elast performance review tha the company

should use more up-to-date base for charging factory overhead costs to production.

She commented that her factory had been highly automated in the last two years

and as a result now has hardly any direction labor. The factory hires only highly

skilled workers to set up productionruns and to do periodic adjustments of

machinery whenever the need arises


1. Compute the following for Able Control Company:

a. The fixed overhead spending variance for October

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