Solution Review Problem 2 Fall 09 4.docx

Question 3 (40 points) Ravena Labs., Inc. makes a single product which has the following standards: The following data are available for October: 3,750 finished units of compound were produced during the month. 3,500 units of compound were planned to be produced during the month. There was no beginning direct materials inventory. The ending direct materials inventory was 2,000 ounces. Direct materials purchased: 12,000 ounces for $225,000. Direct labor hours worked: 5,600 hours at a cost of $67,200. Variable manufacturing overhead costs incurred amounted to $18,200. Variable manufacturing overhead applied to products: $18,375. [3] (i) What is the dollar change in Raw Materials inventory account for October? Increase / decrease by $ ________________ (circle one) Stays the same [8] (ii) Use the ?prongs? below to calculate both variances for direct materials. Be sure to label your variances appropriately and to state whether they are U or F. WIP [ APxAQ purchased ] 12,000 x $18.75= $225,000 3,750 x 2.5 lbs= 9,375 lbs x $20 = $ 187,500 SPxAQ used= 10,000 lbs x $ 20 =$ 200 ,000 SPxAQ purchased = 12,000 lbs x $20 =$ 240,000DIRECT MATERIALS [8] (iii) What journal entries will record these variances? Dr Raw Materials Inventory $240,000 Cr Accounts Payable $225,000 Cr MPV $15,000 Dr Work in Process Inventory $187,500 Dr MQV $12,500 Cr Raw Materials Inv. $200,000 Direct materials 2.5 ounces at $20 per ounce Direct labor 1.4 hours at $12.50 per hour Variable manufacturing overhead 1.4 hours at ? per hour MPV = $15,000 F MQV = $12,50 0 U 2