Exercise 2520 Vista Company installed a standard cost system

Exercise 25-20

Vista Company installed a standard cost system on January 1. Selected transactions for the month of January are as follows.

Journalize the January transactions. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 125.)

No.

Account Titles and Explanation

Debit

Credit

.

1.		Purchased 18,600 units of raw materials on account at a cost of $3.50 per unit. Standard cost was $3.20 per unit.
2.		Issued 18,600 units of raw materials for jobs that required 18,380 standard units of raw materials.
3.		Incurred 15,000 actual hours of direct labor at an actual rate of $4.70 per hour. The standard rate is $5.20 per hour. (Credit Factory Wages Payable.)
4.		Performed 15,000 hours of direct labor on jobs when standard hours were 15,200.
5.		Applied overhead to jobs at the rate of 100% of direct labor cost for standard hours allowed.

Solution

No Account Titles and explanation Debit Credit 1 Raw material Inventory( 18600 units*$3.2) $                                              59,520 Direct material price variance(18600 units*($3.5-3.2)) $                                                5,580 Accounts Payable(18600 units*$3.5) $             65,100 Being Purchased 18,600 units of raw materials on account at a cost of $3.50 per unit. Standard cost was $3.20 per unit. Explanation: Material price Variance= (Actual Quantity purchased*Actual Price)-(Actual Quantity purchased*Standard price) (18600*3.5)-(18600*3.2)=5580 Unfavourable as actual cost is more than standard. 2 Work in Process(18380 units*$3.2) $                                              58,816 Direct material usage Variance(18380-18600 units)*$3.2 $                                                    704 Raw material Inventory(18600 units*$3.2) $             59,520 Being Issued 18,600 units of raw materials for jobs that required 18,380 standard units of raw materials. Explanation: Material quantity Variance= (Actual Quantity purchased*Standard Price)-(Standard Quantity purchased*Standard price) (18600*3.2)-(18380*3.2)=704 unfavorable being actual quantity used is more than standard quantity which should have been used. 3 Labour hours incurred( 15000 hours*$5.2) $                                              78,000 Factory Wages Payable(15000 hours*$4.7) $             70,500 Labour rate price variance(15000 hours*($4.7-5.2)) $               7,500 Being Incurred 15,000 actual hours of direct labor at an actual rate of $4.70 per hour. The standard rate is $5.20 per hour. (Credit Factory Wages Payable.) Explanation: Labour rate Variance= (Actual hours worked*Actual rate)-(Actual hours worked*Standard rate) (15000*4.7)-(15000*5.2)=-7500 Favorable being low rate incurred as compared to standard rate 4 Work in Process(15200 hours*$5.2) $                                              79,040 labour hours incurred(15000 units*$5.2) $             78,000 Labour Efficiency Variance(15200-15000 hours)*$5.2 $               1,040 Performed 15,000 hours of direct labor on jobs when standard hours were 15,200. Explanation: Labour efficiency Variance= (Actual hours worked*Standard rate)-(Standard hours allowed*Standard rate) (15000*5.2)-(15200*5.2)=-1040 Favorable being less hours performed as compared to standard hours 5 Work in Process(15200*5.2) $                                              79,040 Overhead Applied $             79,040 Being Applied overhead to jobs at the rate of 100% of direct labor cost for standard hours allowed.