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Standard Cost Variances, Slick Corporation

Slick Corporation is a small producer of synthetic motor oil. During May, the company produced 5,000 cases of lubricant. Each case contains twelve quarts of synthetic oil. To achieve this level of production, Slick purchased and used 16,500 gallons of direct materials at a cost of $20,514. It also incurred average direct labor costs of $15 per hour for the 4,067 hours worked in May by its production personnel. Manufacturing overhead for the month totaled $9,707, of which $2,200 was considered fixed. Slick's standard cost information for each case of synthetic motor oil is as follows:

Direct materials standard price $ 1.30 per gallon
Standard quantity allowed per case 3.25 gallons
Direct labor standard rate $ 16 per hour
Standard hours allowed per case 0.75 direct labor hours
Fixed overhead budgeted $ 2,600 per month
Normal level of production 5,200 cases per month
Variable overhead application rate $ 1.50 per case
Fixed overhead application rate ($2,600 Ã?· 5,200 cases) 0.50 per case
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Total overhead application rate $ 2.00 per case
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a. Compute the materials price and quantity variances. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance). Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Materials price variance $

Materials quantity variance $

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b. Compute the labor rate and efficiency variances. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance). Negative amounts should be indicated by a minus sign. Omit the "$" sign in your response.)

Labor rate variance $

Labor efficiency variance $

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c. Compute the manufacturing overhead spending and volume variances. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)

Overhead spending variance $

Overhead volume variance $

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d-1 Prepare the journal entries to charge materials (at standard) to Work in Process. (Omit the "$" sign in your response.)

General Journal Debit Credit

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d-2 Prepare the journal entries to charge direct labor (at standard) to Work in Process. (Omit the "$" sign in your response.)

General Journal Debit Credit

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d-3 Prepare the journal entries to charge manufacturing overhead (at standard) to Work in Process. (Omit the "$" sign in your response.)

General Journal Debit Credit

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d-4 Prepare the journal entries to transfer the cost of the 5,000 cases of synthetic motor oil produced in May to Finished Goods. (Omit the "$" sign in your response.)

General Journal Debit Credit

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d-5 Prepare the journal entries to close any over or underapplied overhead to Cost of Goods Sold. (Omit the "$" sign in your response.)

General Journal Debit Credit

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Solution Summary

Variances are computed for you in Excel. A few instructional comments (but not all steps explained).

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