Question

The finishing department of Kozart Company produced 25,000 units during October.  The standard number of direct labor-hours is two hours per unit.  The standard rate per hour is 37.80. During October, 52,250 direct labor-hours were worked, at a total cost of $1,742,500.

A. Compute the labor price variance (sometimes called the labor rate variance) for October.

B. Compute the labor quantity variance (sometimes called the labor efficience variance) for October.

C. Assuming that Kozart's accounting process incorporates variances in the formal accounting records, record a summary of the labor data in a journal entry in keeping with the process.

D. Record the journal entry to dispose of any labor variances in terms of closing the variances into cost of goods sold. 

Answer 1

A	Labor price variance
	Actual rate per hour	$              34.00
	Standard rate per hour	$              37.80
	Difference	$                 3.80
		X
	Actual hours	$       51,250.00
	Labor price variance	$    194,750.00
B	Actual quantity of hours	51,250.00
	Standard quantity of hours	50,000.00
	Difference	-1,250.00
		X
	Standard rate per hour	$              37.80
	Labor efficiency variance	$     (47,250.00)
	Account	Debit	Credit
C	Work in process inventory	$       1,890,000
	Labor quantity (efficiency variance)	$            47,250
	Labor price (rate) variance		$          194,750
	Payroll summary		$       1,742,500
D	Labor price (rate) variance	$          194,750
	Labor quantity (efficiency variance)		$            47,250
	Cost of goods sold		$          147,500