Segers Corporation manufactures one product. It does not maintain any beginning or ending Work in Process inventories. The company uses a standard cost system in which inventories are recorded at their standard costs and any variances are closed directly to Cost of Goods Sold. There is no variable manufacturing overhead. The company's balance sheet at the beginning of the year was as follows:
The standard cost card for the company's only product is as follows:
The standard fixed manufacturing overhead rate was based on budgeted fixed manufacturing overhead of $238,000 and budgeted activity of 28,000 hours.
During the year, the company completed the following transactions:a. Purchased 51,000 liters of raw material at a price of $9.20 per liter.b. Used 46,100 liters of the raw material to produce 33,000 units of work in process.c. Assigned direct labor costs to work in process. The direct labor workers (who were paid in cash) worked 26,200 hours at an average cost of $19.90 per hour.d. Applied fixed overhead to the 33,000 units in work in process inventory using the predetermined overhead rate multiplied by the number of direct labor-hours allowed. Actual fixed overhead costs for the year were $251,800. Of this total, $165,800 related to items such as insurance, utilities, and indirect labor salaries that were all paid in cash and $86,000 related to depreciation of manufacturing equipment.e. Transferred 33,000 units from work in process to finished goods.f. Sold for cash 34,800 units to customers at a price of $44.00 per unit.g. Completed and transferred the standard cost associated with the 34,800 units sold from finished goods to cost of goods sold.h. Paid $156,000 of selling and administrative expenses.i. Closed all standard cost variances to cost of goods sold.
Required:1. Compute all direct materials, direct labor, and fixed overhead variances for the year.2. Enter the beginning balances and record the above transactions in the worksheet that appears below.
3. Determine the ending balance (e.g., 12/31 balance) in each account.

1. Materials price variance = Actual quantity × (Average price − Standard price)= 51,000 liters × ($9.20 per liter − $9.50 per liter)= 51,000 liters × (−$0.30 per liter)= $15,300 FavorableMaterials quantity variance:Standard quantity = Actual output × Standard quantity = 33,000 units × 1.4 liters per unit = 46,200 litersMaterials quantity variance = (Actual quantity − Standard quantity) × Standard price= (46,100 liters − 46,200 liters) × $9.50 per liter= (−100 liters) × $9.50 per liter= $950 FavorableLabor rate variance = Actual hours × (Actual rate − Standard rate)= 26,200 hours × ($19.90 per hour − $19.50 per hour)= 26,200 hours × ($0.40 per hour)= $10,480 UnfavorableLabor efficiency variance:Standard hours = Actual output × Standard quantity = 33,000 units × 0.80 hours per unit = 26,400 hoursLabor efficiency variance = (Actual hours − Standard hours) × Standard rate= (26,200 hours − 26,400 hours) × $19.50 per hour= (−200 hours) × $19.50 per hour= $3,900 FavorableBudget variance = Actual fixed overhead − Budgeted fixed overhead= $251,800 − $238,000= $13,800 UnfavorableVolume variance = Budgeted fixed overhead − Fixed overhead applied to work in process= $238,000 − (26,400 hours × $8.50 per hour)= $238,000 − ($224,400)= $13,600 Unfavorable
2. & 3.
The explanations for transactions a through i are as follows:a. Cash decreases by the actual cost of the raw materials purchased, which is Actual quantity × Average price = 51,000 liters × $9.20 per liter = $469,200. Raw Materials increase by the standard cost of the raw materials purchased, which is Actual quantity × Standard price = 51,000 liters × $9.50 per liter = $484,500. The materials price variance is $15,300 Favorable.b. Raw Materials decrease by the standard cost of the raw materials used in production, which is Actual quantity × Standard price = 46,100 liters × $9.50 per liter = $437,950. Work in Process increases by the standard cost of the standard quantity of raw materials allowed for the actual output, which is Standard quantity × Standard price = (33,000 units × 1.4 liters per unit) × $9.50 per liter = 46,200 liters × $9.50 per liter = $438,900. The difference is the Materials Quantity Variance which is $950 Favorable.c. Cash decreases by the actual amount paid to direct laborers, which is Actual hours × Actual rate = 26,200 hours × $19.90 per hour = $521,380. Work in Process increases by the standard cost of the standard amount of hours allowed for the actual output, which is Standard hours × Standard rate = (33,000 units × 0.80 hours per unit) × $19.50 per hour = 26,400 hours × $19.50 per hour = $514,800. The difference consists of the Labor Rate Variance which is $10,480 Unfavorable and the Labor Efficiency Variance which is $3,900 Favorable.d. Cash decreases by the actual amount paid for various fixed overhead costs, which is $165,800. Work in Process increases by the standard amount of hours allowed for the actual output multiplied by the predetermined overhead rate, which is (33,000 units × 0.80 hours per unit) × $8.50 per hour = 26,400 hours × $8.50 per hour = $224,400. Property, Plant, and Equipment (net) decreases by the amount of depreciation for the period, which is $86,000. The difference is the Fixed Overhead (FOH) Budget Variance which is $13,800 Unfavorable and the Fixed Overhead (FOH) Volume Variance which is $13,600 Unfavorable.e. Work in Process decreases by the number of units transferred to Finished Goods multiplied by the standard cost per unit = 33,000 units × $35.70 per unit = $1,178,100. Finished Goods increases by the same amount.f. Cash increases by the number of units sold multiplied by the selling price per unit, which is 34,800 units × $44.00 per unit = $1,531,200. Retained Earnings increases by the same amount.g. Finished Goods decreases by the number of units sold multiplied by their standard cost per unit, which is 34,800 units × $35.70 per unit = $1,242,360. Retained Earnings decreases by the same amount.h. Cash and Retained Earnings decrease by $156,000 to record the selling and administrative expenses.i. All variance accounts take their balance to zero and they are closed to Cost of Goods Sold (which resides within Retained Earnings).