Slick Corporation is a small producer of synthetic motor oil. During May, the company produced 5,000 cases of lubricant. Each case contains twelve quarts of synthetic oil. To achieve this level of production, Slick purchased and used 16,500 gallons of direct materials at a cost of $20,625. It also incurred average direct labor costs of $15 per hour for the 4,200 hours worked in May by its production personnel. Manufacturing overhead for the month totaled $9,950, of which $2,200 was considered fixed. Slick’s standard cost information for each case of synthetic motor oil is as follows:

Direct materials standard price . . . . . . . . . . . . . . . . . $1.30 per gallon

Standard quantity allowed per case . . . . . . . . . . . . . . . 3.25 gallons

Direct labor standard rate . . . . . . . . . . . . . . . . . . . . . . . $16 per hour

Standard hours allowed per case . . . . . . . . . . . . . . .. 0.75 direct labor hours

Fixed overhead budgeted . . . . . . . . . . . . . . . . . . . . . . . . $2,600 per month

Normal level of production . . . . . . . . . . . . . . . . . . . . 5,200 cases per month

Variable overhead application rate . . . . . . . . . . . . . . . . . . $1.50 per case

Fixed overhead application rate

($2,600÷ 5,200 cases) . . . . . . . . . . . . . . . . . . . . . . . . . 0.50 per case

Total overhead application rate . . . . . . . . . . . . . . . . . . . . . $2.00 per case

Instructions

a. Compute the materials price and quantity variances.

b. Compute the labor rate and efficiency variances.

c. Compute the manufacturing overhead spending and volume variances.

d. Prepare the journal entries to:

1. Charge materials (at standard) to Work in Process.

2. Charge direct labor (at standard) to Work in Process.

3. Charge manufacturing overhead (at standard) to Work in Process.

4. Transfer the cost of the 5,000 cases of synthetic motor oil produced in May to Finished Goods.

5. Close any over- or underapplied overhead to Cost of Goods Sold.