Montego Company uses standard costing and recognizes all variances as soon as they are known. In the
Question:
Montego Company uses standard costing and recognizes all variances as soon as they are known. In the year just ended, Montego debited the DM Inventory account for $450,000 when it purchased DM on account. It further credited DM Inventory for $375,000 when it transferred materials into production, while debiting WIP Inventory for $425,000 to recognize the standard DM cost of these units produced. The company accrued $512,000 in wages to its production workers for this period’s 32,000 hours of work. Also known by the end of the year were the following two variances:
DM price variance was $13,500 unfavorable, and the DL flexible budget variance was $2,000 unfavorable.
Partial information on the company’s DM and DL standards are reproduced here:
Direct materials 5 pounds/unit @ $5/pound
Direct labor 2 hours/unit @ $___/hour
Required
Recreate Montego Company’s journal entries for the following three transactions:
(1) the purchase of DM,
(2) the use of DM (i.e., transfer to production), and
(3) the DL cost incurred (accrued).
Recreate Montego Company’s variance analysis for DM and DL to determine the following variances:
(1) DM efficiency variance,
(2) DL price variance, and
(3) DL efficiency variance.
Determine the following amounts:
(1) number of units produced,
(2) pounds of DM purchased,
(3) pounds of DM used,
(4) actual cost of DM per pound, and
(5) actual cost of DL per hour.
Financial Accounting Information For Decisions
ISBN: 978-0324672701
6th Edition
Authors: Robert w Ingram, Thomas L Albright