Given the following account balances at the end of the first year of operations: Work in process inventory $ 90,000
Finished goods inventory 165,000
Cost of goods sold 495,000
Direct labour price variance 35,000 U
Direct labour efficiency variance 17,000 F
Assuming that variances are considered material, the entry and amount of direct labour variances allocated to the Finished Goods Inventory is:
A)Credit $3,740
B)Debit $2,160
C)Credit $770
D)Debit $3,960

Question

Quizplus · Accepted Answer

The direct labour variances are allocated to the Finished Goods Inventory using the following formula - (Direct labour price variance + Direct labour efficiency variance) * (Finished Goods Inventory / (Finished Goods Inventory + Work in process inventory)).

Plugging in the values from the question, we get:

(35,000 U + 17,000 F) * (165,000 / (165,000 + 90,000)) = 18,000

Since the variances are material, this amount is debited to the Finished Goods Inventory, thus the correct answer is D, Debit $3,960.

Given the Following Account Balances at the End of the First