Question

Dash Company adopted a standard costing system several years ago. The standard costs for the prime costs (.e., direct materials and direct labor) of its single product are: Material Labor (5 kilograms x $6.00 per kilogram) (6 hours x $16.00 per hour) $30.00 96.00 All materials are added at the beginning of processing. The following data were taken from the company's records for November: In-process beginning inventory In-process ending inventory Units completed Budgeted output Purchases of materials Total actual direct labor costs Actual direct labor hours Materials usage variance Total materials variance None 600 units, 75% complete as to direct labor 7,500 units 7,900 units 69,000 kilograms $ 680,000 46,200 hours $ 3,600 Unfavorable $ 840 Unfavorable Required: 1. Compute for November: a. The direct labor efficiency variance. Is this variance favorable (F) or unfavorable (U)? b. The direct labor rate variance. Is this variance favorable (F) or unfavorable (U)? c. The actual number of kilograms of material used in the production process during the month. d. The actual price paid per kilogram of material during the month, the company calculates the direct materials price variance at point of purchase. e. The amount of direct materials cost and direct labor cost transferred to the Finished Goods Inventory account. f. The total amount of direct materials cost and direct labor cost in the Work-in-Process Inventory account at the end of the month. 2. Prepare journal entries to record all transactions, including the variances in requirement 1.

Answer 1

	Direct materials	Direct labor
Units completed	7500	7500
Equivalent units in ending WIP Inventory	600	450 (600*75%)
Equivalent units produced, November	8100	7950
Standard quantity of input per unit of output	5	6
Total standard quantity for November production	40500	47700

Part 1 a

Labor efficiency variance = SP ×(AQ −SQ) = 16*(46200-47700)=-24000 = $24000 Favorable (F)

Part 1 B

Labor rate (price) variance = (AP ×AQ) −(SP ×AQ)= $680,000 −($16/hr. ×46200 hrs.)= -59200 = $59200 Favorable (F)

Part 1 C

Actual number of kilograms of materials used in November = standard quantity allowed + per unit materials usage variance (unfavorable) = 40500+(3600/5) = 41220 kilograms

Part 1 D

Materials price variance = total materials variance −materials usage variance = 840 U – 3600 U =$2760 F

Therefore,

Actual price per kilogram of material (AP) = Standard price per kg. (SP) −Per unit favorable price variance = $6.00 per kg. −($2760 ÷69000 kgs.) = $6.00 – 0.04 = $5.96 per kilogram

Part 1 E

Amount of direct materials cost and direct labor cost transferred to the finished goods inventory account = Standard manufacturing cost/unit * number of units manufactured in November = (30+96)*7500 = $945000

Part 1 F

Total amount of direct materials cost and direct labor cost in the work-in-process inventory account at the end of the month = (30*600)+(19.60*450) = $26820

Part 2

No.	General journal	Debit	Credit
A	Materials Inventory (5*69000)	345000
	Materials Purchase-Price Variance		2760
	Accounts Payable		342240
B	Work-in-Process Inventory (8100*30)	243000
	Materials Usage Variance		36900
	Materials Inventory (41220*5)		206100
C	Work-in-Process Inventory (7950*96)	763200
	Labor Rate Variance		24000
	Labor Efficiency Variance		59200
	Accrued payroll		680000