Solution to Analysis and Decision-Making Case a. Standard cost cards (supporting detail for entire problem) Standards Quantity per Standard cost per unit Price unit Direct materials 3 pounds Direct labor Variable-MOH 2 machine 1.2 DL hours 2 machine hours $4.00 per pound $14.00 per DL hour $12.00 16.80 $3.50 per machine hour 7.00 Fixed-MOH Total $6.80 per machine hour 13.60 hours $49.40 DM variance analysis Actual Price Variance Actual quantity purchased x Actual price $323,900 $7,900 Unfavorable $79,000 pounds x $4.10/pound b79,000 pounds x $4.00/pound Unnamed Columns Actual quantity purchased x Standard Actual quantity used Standard price b$316,000 Efficiency Flexible Variance Budget Standard quantity x Standard price $300,000 price d$303,600 $3,600 Favorable 75,000 pounds x $4.00/pound d25,300 units x 3 pounds per unit = 75,900 pounds x $4.00/pound Actual quantity DL variance analysis Actual Actual price *$444,600 Price Variance Unnamed Column Efficiency Variance Actual quantity x Standard price b$436,800 $7,800 Unfavorable $31,200 hours x $14.25/hour b31,200 hours x $14.00/hour $11,760 Unfavorable $25,300 units x 1.2 hours per unit = 30,360 hours x $14.00/hour Variable-MOH variance analysis Flexible Budget Standard quantity x Standard price *$425,040 Flexible Budget = Actual Price Variance Unnamed Column Efficiency Variance Applied Variable- MOH Sum of Variable- MOH cost Actual quantity * Standard price Standard quantity * Standard price incurred $166,300 $170,800 b$177,100 $4,500 Favorable $6,300 Favorable *48,800 machine hours x $3.50/machine hour b25,300 units x 2 machine hours per unit = 50,600 machine hours $3.50/machine hour Case (Continued) Fixed-MOH variance analysis Actual Price Variance Master Budget Volume Variance Applied Fixed- MOH Sum of Fixed- MOH cost incurred Budgeted quantity x Standard price $320,000 $312,800 Standard quantity * Standard price *$344,080 $7,200 Unfavorable $31,280 Favorable a25,300 units 2 machine hours per unit = 50,600 machine hours x $6.80/machine hour b. Journal Entries: 1. Purchase of DM on account: DM Inventory 316,000 DM Price Variance 7,900 Accounts Payable 323,900 2. Transfer of DM into production: WIP Inventory 303,600 DM Efficiency Variance 3,600 DM Inventory 300,000 3. Accrual of DL cost: WIP Inventory 425,040 DL Price Variance 7,800 DL Efficiency Variance 11,760 Salaries and Wages Payable 444,600 4. Actual MOH cost incurred: Variable-MOH Control 166,300 Salaries and Wages Payable 100,000 Utilities Payable 66,300 Fixed-MOH Control 320,000 Accumulated Depreciation 200,000 Salaries and Wages Payable 120,000 5. Application of Variable-MOH and Fixed-MOH cost to production: WIP Inventory 521,180 Variable-MOH Control Fixed-MOH Control 177,100 344,080 6. Recognition of specific Variable-MOH and Fixed-MOH variances; closing MOH control accounts: Variable-MOH Control Variable-MOH Price Variance 10,800 4,500 Why is the credit to DM Inventory different from the initial debit to DM Inventory? Because the company used less DM than it purchased. Because the company debited DM Inv for the actual cost of the materials but credited DM Inv for the standard cost of the materials. Because the company debited DM Inv for the standard cost of the materials but credited DM Inv for the actual cost of the materials