Question

Boss Company’s standard cost accounting system recorded this information from its December operations.

Standard direct materials cost	$100,000
Direct materials quantity variance (unfavorable)	3,000
Direct materials price variance (favorable)	500
Actual direct labor cost	90,000
Direct labor efficiency variance (favorable)	7,000
Direct labor rate variance (unfavorable)	1,200
Actual overhead cost	375,000
Volume variance (unfavorable)	12,000
Controllable variance (unfavorable)	9,000

Required

1.Prepare December 31 journal entries to record the company’s costs and variances for the month. (Do not prepare the journal entry to close the variances.)

Analysis Component

2.Identify the variances that would attract the attention of a manager who uses management by exception. Explain what action(s) the manager should consider.

Short answer

The total of debits and credits is$575,000.

Step-by-step solution

Meaning of Variances 

Inmanagerial accounting, variance denotes the difference betweenstandard and actual outputs. Managers perform analysis to determine the variances for making necessary decisions and future planning.

Preparation of journal entries

Date	Accounts and Explanation	Debit ($)	Credit ($)
Dec 31	Goods in process inventory	100,000
	Direct materials quantity variance	3,000
	Direct materials price variance		500
	Raw materials inventory		102,500
	(To record material cost with variances)
Dec 31	Goods in process inventory (90000+7000-1200)	95,800
	Direct labor rate variance	1,200
	Direct labor efficiency variance		7,000
	Actual direct labor cost		90,000
	(To record labor cost with variances)
Dec 31	Goods in process inventory (375000-9000-12000)	354,000
	Controllable variance	9,000
	Volume variance	12,000
	Actual overhead cost		375,000
	(To record overhead cost with variances)

Identification of variances

The following variances are of greatest concern for the managers:

• Controllable variance
• Direct materials quantity variance
• Volume variance

The above variances would help the manager to ascertain the obstacles in the achieving thedesired goals.

In addition, the managers should analyze each variance critically for resolving thediscrepancies arising due to variances and negative impact of the same.