Question

Direct Materials and Direct Labor Variances

Zoller Company produces a dark chocolate candy bar. Recently, the company adopted the following standards for one bar of the candy:

Direct materials (6.30 oz. @ $0.20)	$1.26
Direct labor (0.08 hr. @ $18.00)	1.44
Standard prime cost	$2.70

During the first week of operation, the company experienced the following actual results:

1. Bars produced: 145,000.
2. Ounces of direct materials purchased: 913,800 ounces at $0.21 per ounce.
3. There are no beginning or ending inventories of direct materials.
4. Direct labor: 11,460 hours at $17.20.

Required:

Instructions for parts 1 and 2: If a variance is zero, enter "0" and select "Not applicable" from the drop down box.

1. Compute price and usage variances for direct materials.

Materials Price Variance	$	Unfavorable
Materials Usage Variance	$	Unfavorable

2. Compute the rate variance and the efficiency variance for direct labor.

Labor Rate Variance	$	Favorable
Labor Efficiency Variance	$	Favorable

Feedback

1. SP = Standard price per unit
AQ =Actual quantity of direct material used in production
SQ = Standard quantity of input for actual quantity of output
If necessary, refer to the textbook for the materials price variance and usage variance formulas.

2.
AR = Actual hourly wage rate
SR = Standard hourly wage rate
AH =Actual direct labor hours used
SH = Standard direct labor hours that should have been used  
If necessary, refer to the textbook for the labor rate variance and efficiency variance formulas.

3. Prepare the journal entries associated with direct materials and direct labor. If an amount box does not require an entry, leave it blank or enter "0".

	Record purchase of materials
	Record usage of materials
	Record labor variances

Feedback

3. Companies must restate costs and inventories at the end of the year to actual cost. So, variance accounts must be closed out and their balances applied to Cost of Goods Sold (if immaterial) or prorated among Cost of Goods Sold, Work in Process, and Finished Goods.

Answer 1

ANSWER

MATERIAL PRICE VARIANCE = (STANDARD PRICE-ACTUAL PRICE)ACTUAL QTY

                                             = (0.20-0.21)913,800

MATERIAL PRICE VARIANCE = 9138 UNFAVORABLE

MATERIAL USAGE VARIANCE = (STANDARD QTY-ACTUAL QTY)STANDARD PRICE

                                               = (145,000*6.30 -913,800 )0.20

MATERIAL USAGE VARIANCE = 60 UNFAVORABLE

LABOR RATE VARIANCE = (STANDARD RATE-ACTUAL RATE)ACTUAL HOUR

                                         = (18-17.20)11,460

LABOR RATE VARIANCE = 9168 FAVORABLE

LABOR EFFICIENCY VARIANCE = (STANDARD HOUR-ACTUAL HOUR)ST RATE

                                                   = (145,000 *.08-11,460 )18

LABOR EFFICIENCY VARIANCE = 2520 FAVORABLE

JOURNAL ENTRY :

DATE	ACCOUNTS & EXPLANATION	DEBIT	CREDIT
	DIRECT MATERIAL A/C	182,760
	MATERIAL PRICE VARIANCE	9138
	ACCOUNT PAYABLE A/C		191,898
	( TO RECORD MATERIAL PURCHASE)
	WORK IN PROCESS A/C	182,700
	MATERIAL USAGE VARIANCE	60
	DIRECT MATERIAL A/C		182,760
	( TO RECORD USAGE OF MATERIAL)
	WORK IN PROCESS A/C	208,800
	LABOR RATE VARIANCE		9168
	LABOR USAGE VARIANCE		2520
	WAGES PAYABLE A/C (TO RECORD LABOR VARIANCE)		197,112

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