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Deporte Company produces single-colored t-shirts Materials for the shirts are dyed in large vats After dying the materials for a given color the vats must be cleaned and prepared for the

Deporte Company produces single-colored t-shirts. Materials for the shirts are dyed in large vats. After dying the materials for a given color, the vats must be cleaned and prepared for the next batch of materials to be colored. The following standards for changeover for a given batch have been established:

During the year, 79,500 pounds of material were purchased and used for the changeover activity. There were 30,000 batches produced, with the following actual prime costs:

 (Appendix 10A) Journal Entries Refer to the information for Deporte Company above. Required:

1. Prepare a journal entry for the purchase of raw materials.

2. Prepare a journal entry for the issuance of raw materials.

3. Prepare a journal entry for the addition of labor to Work in Process.

4. Prepare a journal entry for the closing of variances to Cost of Goods Sold.

APPENDIX 10A

ACCOUNTING FOR VARIANCES To illustrate recording variances, we will assume that the materials price variance is computed at the time materials are purchased. With this assumption, we can state a general rule for a firm’s inventory accounts: All inventories are carried at standard cost. As a result, actual costs are not entered into an inventory account. Instead, applied standard costs flow through inventory and eventually to cost of goods sold. As illustrated in this appendix, the accounts containing the variances between applied standard costs and actual costs are closed, which allows the amount of actual costs to ultimately impact the final cost of goods sold number that appears in the financial statements. In recording variances, unfavorable variances always are debits, and favorable variances always are credits. Entries for Direct Materials Variances Materials Price Variance The entry to record the purchase of materials follows (assuming an unfavorable MPV and that AQ is materials purchased):

For example, if AP is $0.0069 per ounce of corn, SP is $0.0060 per ounce, and 780,000 ounces of corn are purchased, the entry would be:

Notice that the raw materials are carried in the inventory account at standard cost. Materials Usage Variance The general form for the entry to record the issuance and usage of materials, assuming a favorable MUV, is as follows:

Here, AQ is the materials issued and used, not necessarily equal to the materials purchased. Notice that only standard quantities and standard prices are used to assign costs to Work in Process. No actual costs enter this account. For example, if AQ is 780,000 ounces of corn, SQ is 873,000 ounces, and SP is $0.006, then the entry would be:

 

Jun 27 2020 View more View Less

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