Given the following account balances at the end of the first year of operations: Assuming that variances are considered material, the entry and amount of direct labor variances allocated to the Finished Goods Inventory is
A) Credit $3,740
B) Debit $2,160
C) Credit $770
D) Debit $3,960

Question

Given the following account balances at the end of the first year of operations:  Assuming that variances are considered material, the entry and amount of direct labor variances allocated to the Finished Goods Inventory is
A) Credit $3,740 
B) Debit $2,160 
C) Credit $770 
D) Debit $3,960

Quizplus · Accepted Answer

To determine the direct labor variance allocated to finished goods inventory, we need to calculate the difference between the actual cost of direct labor and the standard cost of direct labor, and then multiply the difference by the actual quantity of the product produced during the period.

Calculations: 
Actual cost of direct labor = $121,200 
Standard cost of direct labor = $125,160 
Direct labor variance = Actual cost - Standard cost 
= $121,200 - $125,160 
= -$3,960

Since the direct labor variance is negative, we will debit the Finished Goods Inventory account to reduce its value.

Therefore, the entry and amount of direct labor variances allocated to the Finished Goods Inventory is: 
Debit Finished Goods Inventory for $3,960.

Given the Following Account Balances at the End of the First