The Brownsville plant of Buckman Company produces an industrial chemical. At the beginning of the year, the Brownsville plant had the following standard cost sheet:
Direct materials (10 lbs. @ $1.60) ……………..$16.00
Direct labor (0.75 hr. @ $18.00) ………………. 13.50
Fixed overhead (0.75 hr. @ $4.00) …………….. 3.00
Variable overhead (0.75 hr. @ $3.00) …………. 2.25
Standard cost per unit ………………………….$34.75
The Brownsville plant computes its overhead rates using practical volume, which is 72,000 units. The actual results for the year are as follows:
a. Units produced: 70,000.
b. Direct materials purchased: 744,000 pounds at $1.50 per pound.
c. Direct materials used: 736,000 pounds.
d. Direct labor: 56,000 hours at $17.90 per hour.
e. Fixed overhead: $214,000.
f. Variable overhead: $175,400.
Required:
1. Compute price and usage variances for direct materials.
2. Compute the direct labor rate and labor efficiency variances.
3. Compute the fixed overhead spending and volume variances. Interpret the volume variance.
4. Compute the variable overhead spending and efficiency variances.
5. Prepare journal entries for the following:
a. The purchase of direct materials.
b. The issuance of direct materials to production (Work in Process).
c. The addition of direct labor to Work in Process.
d. The addition of overhead to Work in Process.
e. The incurrence of actual overhead costs.
f. Closing out of variances to Cost of Goods Sold.