Dyelot Industries manufactures dyes and uses cost standards. The dye is produced in 1,000 pound batches; the normal level of production is 500 batches of dye per month. The standard costs per batch are as follows:

 

 

 

Standard Costs per Batch

 

Direct materials:

 

Various chemicals (1,000 pounds

 

per batch at $0.80/pound)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                         $  800 Direct labor:

 

Preparation and blending (20 hours

 

per batch at $8.00/hour) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                              160

 

Manufacturing overhead:

 

 

 

Fixed ($150,000 per month � 500 batches) . . . . . . . . . . . . . . . . . . . . .	$300	Â
Variable (per batch) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	    20	     320
Total standard cost per batch of fertilizer. . . . . . . . . . . . . . . . . . . . . . . . . .	Â	$1,280

 

 

 

During January, the company temporarily reduced the level of production to 400 batches of dye.

 

Actual costs incurred in January were as follows:

 

 

 

Direct materials (410,000 pounds at $0.75) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$307,500
Direct labor (7,950 hours at $7.80/hour)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	62,010
Manufacturing overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	  150,490
Total actual costs (400 batches)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$520,000
Standard cost of 400 batches (400 batches X $1,280 per batch) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	    512,000
Net unfavorable cost variance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$   8,000

 

 

Instructions

You have been engaged to explain in detail the elements of the $8,000 net unfavorable cost variance and to record the manufacturing costs for January in the company’s standard cost accounting system.

 

 

 

a.      As a first step, compute the materials price and quantity variances, the labor rate and efficiency variances, and the overhead spending and volume variances for the month.

 

b.      Prepare journal entries to record the flow of manufacturing costs through the standard cost system and the related cost variances. Make separate entries to record the costs of direct materials used, direct labor, and manufacturing overhead. Work in Process Inventory is to be debited only with standard costs.