Chen Company Uses a Standard Cost System

question 51

Essay

Chen Company uses a standard cost system. As such, all its inventories are carried on the books at standard, not actual, cost. During the most recent accounting period, the company had the following summary transactions:
1. Purchased, on credit, direct materials; the standard cost of these materials was $30,000, while the actual cost was $32,000.
2. Issued to production direct materials. The standard cost of materials that should have been used for this period's output was $35,000, while the standard cost of materials used in production during the period was $33,000.
3. Actual direct labor cost, which has been incurred but not yet paid, for the period was $75,000. The standard direct labor cost for this period's output was $80,000. The direct labor efficiency variance for the period was $10,000(F).
4. For the units completed during the period, the standard direct labor cost was $78,000, while the standard direct materials cost was $34,000.
5. For the units sold during the period, the standard materials cost was $30,000, while the standard direct labor cost was $76,000.
Required:
Given the above information, provide the correct journal entries for the following:
1. Purchase of direct materials
2. Issuance of materials to production.
3. Direct labor cost for the period.
4. The labor and materials cost associated with finished production this period.
5. The labor and materials cost associated with items sold during the period.

---

Definitions:

Inventory

The goods and materials a business holds for the ultimate goal of resale, production, or utilisation in the service of manufacturing or providing services.

Accounts Payable

Liabilities representing amounts a company owes to creditors for goods and services purchased on credit and not yet paid.

Average Days

A measure that typically refers to the average number of days an asset is held or the average number of days it takes for a company to convert certain assets into cash.

Sell Inventory

The process of selling goods that are held for sale in the ordinary course of business, turning inventory into revenue.