Problem - Radford Company uses a standard cost system to record its manufacturing costs in the accounting records. The company manufactures a product that uses the following standards.
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Direct materials
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6 units at $5.00 per unit
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Direct labor
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2 labor hours at $10.25 per hour
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Variable manufacturing overhead
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3 machine hours at $6.50 per hour
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Fixed manufacturing overhead
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3 machine hours at $8.25 per hour
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The fixed manufacturing overhead is based on a normal capacity of 360,000 machine hours per year. The actual results for the current year are provided below.
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Direct materials purchases
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900,000 units at a total cost of $4,523,000
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Direct materials used
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690,000 units
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Direct labor
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210,000 labor hours at a total cost of $2,150,000
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Actual machine hours used
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320,000
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Variable manufacturing overhead
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Actual cost of $2,100,000
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Fixed manufacturing overhead
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Actual cost of $2,625,000
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The company produced 110,000 units during the year. The company completed 80% of the total work in process during the year. The company sold 90% of the finished goods on hand at a markup of 25% above standard cost. There were no beginning inventories.
REQUIRED: (1) Calculate the following manufacturing cost variances, showing all supporting computations. Round all calculations to the nearest whole dollar.
(a) Direct materials price variance.
(b) Direct materials quantity variance.
(c) Direct labor rate variance.
(d) Direct labor efficiency variance.
(e) Variable manufacturing overhead spending variance.
(f) Variable manufacturing overhead efficiency variance.
(g) Fixed manufacturing overhead spending variance.
(h) Fixed manufacturing overhead volume variance.
(2) Prepare all the general journal entries, in proper form, that would be required to record the transactions in the standard cost system of the company. Assume that variances are isolated at the earliest possible point in the accounting system. Provide a brief explanation for your entry.