Question

Assume Drake Consulting has created a standard cost card for each job. Standard direct materials per job include 14 software packages at a cost of $950 per package. Standard direct labor costs per job include 100 hours at $150 per hour. Drake plans on completing 11 jobs during March 2018. Actual direct materials costs for March included 85 software packages at a total cost of $82,875. Actual direct labor costs included 115 hours per job at an average rate of $151 per hour. Drake completed all 11 jobs in March. Requirement 1. Calculate direct materials cost and efficiency variances. Select the formula to calculate direct materials cost and efficiency variances, then enter the variance amounts. (Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity. Label each variance as favorable (F) or unfavorable (U).) Variance Direct materials cost variance Formula (AC-SC) XAQ (AQ - SQ) x SC U OR F? U OR F? Direct materials efficiency variance Requirement 2. Calculate direct labor cost and efficiency variances. Select the formula to calculate direct labor cost and efficiency variances, then enter the variance amounts. (Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity. Label each variance as favorable (F) or unfavorable (U).) Variance Direct labor cost variance Direct labor efficiency variance Formula (AC - SC) XAQ (AQ - SQ)X SC U OR F? U OR F? Requirement 3. Prepare journal entries to record the use of both materials and labor for March for the company. (Record debits first, then credits. Select the explanation on the last line of the journal entry table.) Begin by journalizing the usage of direct materials, including the related variance. (Prepare a single compound journal entry.) Date Accounts and Explanation Debit Credit Mar 31 Work-in-Process Inventory Direct Materials Efficiency Variance Raw Materials Inventory Journalize the assignment of direct labor costs, including the related variances. (Prepare a single compound journal entry.) Date Debit Credit Mar. 31 Accounts and Explanation Work-in-Process Inventory Direct Labor Cost Variance Direct Labor Efficiency Variance Wages Payable Direct labor costs incurred.

Answer 1

Requirement 1:

Direct materials cost variance	=	(AC-SC) X AQ	=	$2,125	U
Direct materials efficiency variance	=	(AQ-SQ) X SC	=	$65,550	F

Calculations:

SQ = 11 Actual jobs x 14 software packages = 154 packages

AC = Total actual cost ÷ Actual packages = $82,875 ÷ 85 = $975

i.Direct materials cost variance = (AC-SC) X AQ

= ($975-$950) X 85

= $2,125 Unafovrable

ii.Direct materials efficiency variance = (AQ-SQ) X SC

= (85-154) X $950

= $65,550 Favorable

Requirement 2:

Direct labor cost variance	=	(AC-SC) X AQ	=	$1,265	U
Direct labor efficiency variance	=	(AQ-SQ) X SC	=	$24,750	U

Calculations:

SQ = 11 Actual jobs x 100 standard hours = 1,100 hours

AQ = 11 actual jobs x 115 actual hours per job = 1,265 hours

i.Direct labor cost variance = (AC-SC) X AQ

= ($151-$150) X 1,265

= $1,265 Unfavorable

ii.Direct labor efficiency variance = (AQ-SQ) X SC

= (1,265 - 1,100) x $150

= $24,750 Unfavorable

Requirement 3:

Materials:

Date	Account title and Explanation	Debit	Credit
Mar. 31	Work-in-process inventory [154 x $950]	$146,300
	Direct Materials Efficiency Variance	$2,125
	Direct materials cost variance		$65,550
	Accounts payable		$82,875
	[Direct material cost incurred]

Labor:

Date	Account title and Explanation	Debit	Credit
Mar.31	Work-in-process inventory [1,100 x $150]	$165,000
	Direct labor cost variance	$1,265
	Direct labor efficiency variance	$24,750
	Wages payable [1,265 x $151]		$191,015
	[Direct labor cost incurred]