Paper Details
Johnstown Manufacturing Company produces custom-made, tie-dyed sweat shirts for distribution on college campuses. The following standards have been established.
Materials:
Cotton cloth: 2 yards at $1 $ 2.00
Dyes: 1 pint at $.50 .50
Labor: 1/2 hour at $6 3.00
Factory overhead: 1/2 hour at $10 5.00
Total standard cost $10.50
The monthly production budget is based on normal plant operations of 1,600 hours, with fixed factory overhead of $11,200 (that is, a fixed overhead rate at normal capacity of $7 per direct labor hour). Inventories at January 1 were as follows:
Cotton Cloth (2,000 yards at $1) $2,000
Dye (1,000 pints at $.50) 500
Work in Process (1,000 units; 1/4 finished as to conversion; all
materials issued) …………………………………… 4,500
Finished Goods (500 at $10.50) 5,250
Production for January:
3,000 units completed and transferred to finished goods 750 units 1/3 converted, all materials added, in work in process ending inventory
Transactions for January:
Required:
Prepare journal entries to record the January transactions, accounting for work in process at standard cost and recognizing variances in the proper accounts. Use the two-variance method in computing materials and labor, and the alternative three-variance method in computing factory overhead variances. Recognize the materials price variance at the time of purchase. Use separate inventory and variance accounts for each material. Close all variances to Cost of Goods Sold.
