14E

Expert-verified
Found in: Page 973

### Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

# Refer to Exercise 21-13. Hart Company records standard costs in its accounts and its materials variances in separate accounts when it assigns materials costs to the Work in Process Inventory account. 1. Show the journal entry that both charges the direct materials costs to the Work in Process Inventory account and records the materials variances in their proper accounts. 2. Assume that Hart’s materials variances are the only variances accumulated in the accounting period and that they are immaterial. Prepare the adjusting journal entry to close the variance accounts at period-end. 3. Identify the variance that should be investigated according to the management by exception concept. Explain.

The direct material price variance should be investigated by the managers.

See the step by step solution

## Step 1: Meaning of Adjusting Entry

In accounting, adjusting entries are the journal entries passed at the end of an accounting period to adjust the revenues and expenses in the period they occurred. Also, the adjusting entries are recorded after preparing the trial balance.

## Step 2: Preparation of journal entry

 Date Accounts and Explanation Debit ($) Credit ($) Goods in process inventory 288,200 Direct material price variance 2,200 Direct material quantity variance 24,000 Raw material inventory 266,200 (To record the variances)

## Step 3: Preparation of adjusting entry

 Date Accounts and Explanation Debit ($) Credit ($) Material quantity variance 21,800 Cost of goods sold 21,800 (To close the variance account)

## Step 4: Identification of variances

According to the data provided, the managers must investigate the direct material price variance because it is reflecting unfavorable outcomes for the business concern. Therefore, managers are required to review such variance as per the management by exception approach.