AgriChem Industries manufactures fertilizer concentrate and uses cost standards. The fertilizer is produced in 500-pound batches; the normal level of production is 250 batches of fertilizer per month. The standard costs per batch are as follows:

During January, the company temporarily reduced the level of production to 200 batches of fertilizer. Actual costs incurred in January were as follows:
Direct materials (102,500 pounds at $0.57/pound) . . . . . . . . . . . . . . . . $ 58,425
Direct labor (4,750 hours at $6.80/hour) . . . . . . . . . . . . . . . . . . . . . . . . . 32,300
Manufacturing overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,525
Total actual costs (200 batches) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $145,250
Standard cost of 200 batches (200 batches  $700 per batch) . . . . . . . . 140,000
Net unfavorable cost variance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,250

Instructions
You have been engaged to explain in detail the elements of the $5,250 net unfavorable cost variance and to record the manufacturing costs for January in the company’s standard cost accounting system.
a. As a first step, compute the materials price and quantity variances, the labor rate and efficiency variances, and the overhead spending and volume variances for the month.
b. Prepare journal entries to record the flow of manufacturing costs through the standard cost system and the related cost variances. Make separate entries to record the costs of direct materials used, direct labor, and manufacturing overhead. Work in Process Inventory is to be debited only with standardcosts.

Transcribed Image Text:

Standard Costs per Batch Direct materials: Various chemicals (500 pounds per batch at $0.60/pound) Preparation and blending (25 hours per batch at $7.00/hour) Fixed ($50,000 per month250 batches) $300 Direct labor: 175 Manufacturing overhead: $200 Variable (per batch) 225 Total standard cost per batch of fertilizer