Question

B. Howard Company has established the following standards: Direct materials: 2.0 pounds at $4.10 Direct labor: 1.5 hours at $7 per hour Additional information was extracted from the accounting records: Actual production: 32,000 completed units Direct materials purchased: 70,000 pounds at $3.82, or $267.400 Direct materials consumed: 65,000 pounds Actual labor incurred: 51,000 hours at $6.30, or $321,300 Direct-labor rate variance: $35,700 favorable Direct-labor efficiency variance: $21,000 unfavorable Assume that the company computes variances at the earliest point in time. Required: a. What is the amount of Direct Material Purchase Price Variance? Standard material quantity =64000 = 2000 Standard priee pestnit=4.1 Actuat yly purchased 70000 Quantity used = 65000 Actual price = 3.82 70000/4.1-3.82219600 favorable material price variance Material escalance 4100 unfavorable 4.164000-65000) b. Prepare the journal entry to record the usage of direct materials. WIP ---------- 2063009 Nat. Use Val. 4100 Raw Mat use variances c. Prepare the journal entry to record the incurrence of direct labor costs.

Answer 1

Ans:  

A). Direct material purchase price variance=Actual quantity purchased(standard price-actual price)

= 70000(4.10-3.82)

=19,600 Favorable

Material usage variance= Standard price(standard quantity-actual quantity used)

= 4.10(64,000-65,000)

= 4.10(1000)

= 4100 unfavorable

B). Journal entry to record usage of direct materials

S.no	Account title and explanation	Debit($)	Credit($)
	Work in process Dr.(64,000*4.10)	262,400
	Material usage variance Dr.	4,100
	Raw material inventory(65000*4.10)		266,500

C). Journal entry to record the incurrence of direct labor costs;

S.no	Account title and explanation	Debit($)	Credit($)
	Work in process inventory Dr.(48000*7)	336,000
	Labor efficiency variance	21,000
	Labor rate variance		35,700
	Wages payable**		321,300

Working Note:

Labor rate variance= actual hours*Standard rate- actual labor cost  

= 51,000*7-321,300

= 357,000-321,300

= 35,700

Labor efficiency variance= standard rate( standard hours-actual hours)

= 7(32000*1.5-51000)

=7(48,000-51,000)

=21,000 unfavorable

** wages payable= work in process+labor efficiency variance- labor rate variance