Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 57

Journal Entries in a Standard Cost System Boron Chemical Company produces a synthetic resin that is used in the automotive industry. The company uses a standard cost system. For each gallon of output, the following direct manufacturing costs are anticipated:

Direct labor: 2 hours at $25.00 per hour	$50.00
Direct materials: 2 gallons at $10.00 per gallon	$20.00

During December of 2010, Boron produced a total of 2,500 gallons of output and incurred the following direct manufacturing costs:

Direct labor: 4,900 hours worked @ an average wage rate of $19.50 per hour Direct materials:

??Purchased: 6,000 gallons @ $10.45 per gallon

??Used in production: 5,100 gallons

Boron records price variances for materials at the time of purchase.

Required Give journal entries for the following events and transactions:

1. Purchase, on credit, of direct materials.

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2. Direct materials issued to production.

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3. Direct labor cost of units completed this period.

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4. Direct manufacturing cost (direct labor plus direct materials) of units completed and transferred to Finished Goods Inventory.

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5. Sale, for $150 per gallon, of 2,000 gallons of output. (Hint: You will need two journal entries here.)

Step 1 of 6

1.

Materials Inventory (6,000 gals. x $10.00/gal.)	$60,000
Purchase Price Variance	$2,700
Accounts Payable (6,000 gals. x $10.45/gal.)		$62,700

To record, on open account, direct materials: 6,000 gals. @ standard cost of $10.00/gal. Actual cost per gallon = $10.45.