Question

Direct Labor and Direct Materials Variances, Journal Entries

Jameson Company produces paper towels. The company has established the following direct materials and direct labor standards for one case of paper towels:

Paper pulp (3 lbs. @ $0.40)	$ 1.20
Labor (2 hrs. @ $12)	24.00
Total prime cost	$25.20

During the first quarter of the year, Jameson produced 45,000 cases of paper towels. The company purchased and used 135,700 pounds of paper pulp at $0.38 per pound. Actual direct labor used was 91,000 hours at $12.10 per hour.

Required:

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

1. Calculate the direct materials price and usage variances.

Materials Price Variance	$
Materials Usage Variance	$

2. Calculate the direct labor rate and efficiency variances.

Labor Rate Variance	$
Labor Efficiency Variance	$

3. Prepare the journal entries for (1) the direct materials price variance, (2) the direct materials usage variance, and (3) the direct labor variances. If an amount box does not require an entry, leave it blank or enter "0".

1.
2.
3.

Answer 1

1)

WHERE ;

SP = STANDARD PRICE

AP = ACTUAL PRICE

SQ= STANDARD QUANTITY

AQ= ACTUAL QUANTITY

SH = STANDARD HOURS

AH = ACTUAL HOURS

SR = STANDARD RATE

AR = ACTUAL RATE

Materials Price Variance	$2714	FAVOURABLE
Materials Usage Variance	$280	UNFAVOURABLE

direct material price variance = AQ ( SP - AP )

= 135700 pounds( $0.40 - $0.38 )

= 135700 pounds ( $0.02 )

= $2714 FAVOURABLE

direct materials usage variance = SP ( SQ - AQ )

= $0.40 ( 135000 pounds - 135700 pounds  )

= $0.40 ( (-700 pounds ) )

= (-) $280 UNFAVOURABLE

NOTE: STANDARD QUANTITY CALCULATION = 3lbs. * 45000 CASES

= 135000 CASES

total direct materials cost variance = ( SQ*SP - AQ*AP )

= ( 135000 pounds * $0.40 - 135700 pounds * $0.38 )

= ( $54000 - $51566 )

= $2434 FAVOURABLE

2)

Labor Rate Variance	$9100	UNFAVOURABLE
Labor Efficiency Variance	$12000	UNFAVOURABLE

direct labour rate variance = ( SR - AR ) AH

= ( $12- $12.10 ) 91000 hrs

= ( (-)$0.10 ) 91000hrs

= (-) $9100 UNFAVOURABLE

= direct labour Efficiency variance = ( SH - AH ) SR

= ( 90000hrs - 91000hrs ) $12

= (-) 1000hrs * $12

= (-) $12000 UNFAVOURABLE

NOTE: STANDARD HOURS = 2 HOURS * 45000 CASES

= 90000 HOURS

total direct labour variance = ( SH*SR - AH*AR )

= ( 90000hrs*$12 - 91000hrs*12.10 )

= ( $1080000 - $1101100 )

= (-) $21100 UNFAVOURABLE

3)

JOURNAL ENTRIES

1)

	DIRECT MATERIAL PRICE VARIANCE JOURNAL
ACCOUNT					DEBIT	CREDIT
RAW MATERIAL INVENTORY					54280
DIRECT MATERIAL PRICE VARIANCE ACCOUNT						2714
ACCOUNTS PAYABLE						51566
TOTAL					54280	54280

2)

	Direct materials usage variance journal
Account					Debit	Credit
Work in process inventory					54000
Raw materials inventory						54280
Direct materials quantity variance account					280
Total					54280	54280

3)

	Direct labor variance journal
Account							Debit	Credit
Work in process inventory							1080000
Direct labor price variance account							9100
Direct labor efficiency variance account							12000
Wages payable								1101100
Total							1101100	1101100