Question

Kenya Company’s standard cost accounting system recorded this information from its June operations.

Standard direct material cost	$130,000
Direct materials quantity variance (favorable)	5,000
Direct materials price variance (favorable)	1,500
Actual direct labor cost	65,000
Direct labor efficiency variance (favorable)	3,000
Direct labor rate variance (unfavorable)	500
Actual overhead cost	250,000
Volume variance (unfavorable)	12,000
Controllable variance (unfavorable)	8,000

Required

1. Prepare journal entries dated June 30 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. Describe what action(s) the manager should consider.

Short answer

The total of debits and credits is$453,000.

Step-by-step solution

Meaning of Journal Entries

In accounting, journal entries refer to the chronological recording of financial transactions of a business concern. Under such a process, transactions are presented in a tabular manner along with explainingthe each accounting information.

Preparation of journal entries 

Date	Accounts and Explanation	Debit ($)	Credit ($)
June 30	Goods in process inventory	130,000
	Direct materials quantity variance	5,000
	Direct materials price variance		1,500
	Raw materials inventory		133,500
	(To record material cost with variances)
June 30	Goods in process inventory (65000+3000-500)	67,500
	Direct labor rate variance	500
	Direct labor efficiency variance		3,000
	Actual direct labor cost		65,000
	(To record labor cost with variances)
June 30	Goods in process inventory (250000-12000-8000)	230,000
	Controllable variance	8,000
	Volume variance	12,000
	Actual overhead cost		250,000
	(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 ascertain the obstacles in achieving thedesired goals.

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