Question

Rayvo Company has the following information:

Direct Materials:				Direct Labour:
Standard Quantity		100,000		Standard Hours	1,000
Actual Quantity		99,500		Actual Hours	1,050
Standard Price		$5		Standard Rate	$12
Actual Price		$4		Actual Rate	$13

Use the excel document found in the Assignments tab to answer the questions below.

1. Determine the materials price variance and whether it is favourable or unfavourable.
2. Determine the materials usage variance and whether it is favourable or unfavourable.
3. Determine the labour rate variance and whether it is favourable or unfavourable.
4. Determine the labour efficiency variance and whether it is favourable or unfavourable.
5. Provide the journal entries to record the purchase of materials, the issuance and usage of materials, and direct labour variances.
6. Provide the closing entries for the immaterial variances.

Answer 1

Solution:

Here, we are given:

Answer a)

Comment: Here, the negative value of direct material price variance is favorable because the materials are purchased at the price below than what was expected, i.e., standard price.

Answer b)

Comment: Here, the negative value of direct material usage variance is favorable because less quantity of materials is used than the standard quantity needed for the production.

Answer c)

Comment: Here, the positive value of the direct labor rate variance is unfavorable because the actual rate paid to labor is more than the standard rate.

Answer d)

Comment: Here, the positive value of the direct labor efficiency variance is unfavorable because the more hours have been spent than what they should be, i.e., standard hours.