Loretto Company’s standard cost accounting system recorded this information from its December operations.
Standard direct materials cost . . . . . . . . . . . . . . . . . . . . . . . . . $130,000
Direct materials quantity variance (unfavorable) . . . . . . . 5,000
Direct materials price variance (favorable) . . . . . . . . . . . 1,500
Actual direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,000
Direct labor efficiency variance (favorable) . . . . . . . . . . . 7,000
Direct labor rate variance (unfavorable) . . . . . . . . . . . . . . . 500
Actual overhead cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250,000
Volume variance (unfavorable) . . . . . . . . . . . . . . . . . . . . . . . 12,000
Controllable variance (unfavorable) . . . . . . . . . . . . . . . . . . . 8,000

Required
1. Prepare December 31 journal entries to record the company’s costs and variances for the month.
Analysis Component
2. Identify the areas that would attract the attention of a manager who uses management by exception. Explain what action(s) the manager should consider.