Chapter 9-25 Cornerstones of Cost Accounting

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Algers Company produces dry fertilizer. At the beginning of the year, Algers had the following standard cost sheet:

Direct materials (5lbs. @ $2.60) $13.00

Direct Labor (0.75 hr @ $18.00) 13.50

Fixed overhead (0.75 hr @ $4.00) 3.00

Variable overhead (0.75 hr @ $3.00) 2.25


Standard cost per unit $31.75


Algers computers is overhead rates using practical volume, which is 54,000 units. The actual results for the year are as follows:

a. Units produced: 53,000

b. Direct materials purchased: 274,000 pounds at $2.50 per pound

c. Direct materials used: 270,300 pounds

d. Direct labor: 40,100 hours at $17.95 per hour

e. Fixed overhead: $161,700

f. Variable overhead: $122,000



1. Compute price and usage variances for direct materials.

2. Compute the direct labor rate and labor efficiency variances.

3. Compute the fixed overhead spending and volume variances. Intercept the volume variance.

4. Compute the variable overhead spending and efficiency varainces.

5. Prepare journal entries for the following:

a. The purchase of direct materials

b. The issurance of direct materials to production (Work in Process)

c. The addition of direct labor to Work in Process

d. The addition of overhead to Work in Process

e. The incurrence of actual overhead costs

f. Closing out of variances to Cost of Goods Sold

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