Question

Refer to Exercise 21-13. Hart Company records standard costs in its accounts and its materials variances in separate accounts when it assigns materials costs to the Work in Process Inventory account.

1. Show the journal entry that both charges the direct materials costs to the Work in Process Inventory account and records the materials variances in their proper accounts.

2. Assume that Hart’s materials variances are the only variances accumulated in the accounting period and that they are immaterial. Prepare the adjusting journal entry to close the variance accounts at period-end.

3. Identify the variance that should be investigated according to the management by exception concept. Explain.

Short answer

Thedirect material price varianceshould be investigated by the managers.

Step-by-step solution

Meaning of Adjusting Entry

In accounting, adjusting entries are the journal entries passed at the end of an accounting period to adjust the revenues and expenses in the period they occurred. Also, the adjusting entries are recorded after preparing the trial balance.

Preparation of journal entry

Date	Accounts and Explanation	Debit ($)	Credit ($)
	Goods in process inventory	288,200
	Direct material price variance	2,200
	Direct material quantity variance		24,000
	Raw material inventory		266,200
	(To record the variances)

Preparation of adjusting entry

Date	Accounts and Explanation	Debit ($)	Credit ($)
	Material quantity variance	21,800
	Cost of goods sold		21,800
	(To close the variance account)

Identification of variances

According to the data provided, the managers must investigate the direct material price variance because it is reflecting unfavorable outcomes for the business concern. Therefore, managers are required to review such variance as per the management by exception approach.