Question

Dash Company adopted a standard costing system several years ago. The standard costs for the prime costs (i.e., direct materials and direct labor) of its single product are:

Material	(8 kilograms × $3.00 per kilogram)	$	24.00
Labor	(6 hours × $16.50 per hour)		99.00

All materials are added at the beginning of processing. The following data were taken from the company’s records for November:

In-process beginning inventory			None
In-process ending inventory		650	units, 80% complete as to direct labor
Units completed		7,400	units
Budgeted output		7,800	units
Purchases of materials		68,000	kilograms
Total actual direct labor costs	$	710,000
Actual direct labor hours		46,100	hours
Materials usage variance	$	3,300	Unfavorable
Total materials variance	$	580	Unfavorable

Required:

1. Compute for November:

a. The direct labor efficiency variance. Is this variance favorable (F) or unfavorable (U)?

b. The direct labor rate variance. Is this variance favorable (F) or unfavorable (U)?

c. The actual number of kilograms of material used in the production process during the month.

d. The actual price paid per kilogram of material during the month, the company calculates the direct materials price variance at point of purchase.

e. The amount of direct materials cost and direct labor cost transferred to the Finished Goods Inventory account.

f. The total amount of direct materials cost and direct labor cost in the Work-in-Process Inventory account at the end of the month.

2. Prepare journal entries to record all transactions, including the variances in requirement 1.

Answer 1

a. Direct labor efficiency variance

= (Standard hours worked for actual output - Actual Hours worked ) * Standard rate per hour

Standard rate per unit = $ 16.50 per hour

Actual units completed = 7400

Standard hours for single output = 6 hours

therefore, Standard hours for actual output = 7400*6 = 44,400 hours

Actual hours for actual output = 46,100

= (44,100 - 46,100) * 16.50

= $ 28,050 (Unfavorable)

b. Direct labor rate variance

= (Standard rate per hour - Actual rate per hour) * Actual hours worked

Standard rate per unit = $ 16.50 per hour

Actual hours worked = 46,100

Actual direct labor cost = $ 710,000

therefore, actual rate per hour = 710000 / 46100 = $ 15.40

= ( 16.50 - 15.40) * 46,100

= $ 50710 (Favorable)

c. The actual number of kilograms of material used in the production process during the month.

Material Usage Variance = $ 3,300 (Unfavorable)

Standard quantity used for actual production = (8kgs * 7400 units) = 59200 kgs

Material Usage Variance = ( Standard quantity used for actual production - Actual Quantity Used ) * Standard rate per kg

3300 = (59200 - Actual quantity) * 3

Actual Quantity used in production process = 60300 Kgs

d. The actual price paid per kilogram of material during the month

Total materials variance = $ 580 (Unfavorable)

Material Usage Variance = $ 3,300 (Unfavorable)

Material Price Variance = $ 580 - $ 3,300 = $ 2,720 (Favorable)

Material Price Variance = (Standard price - Actual Price) * Actual Quantity

2720 = ( 3 - AP) * 60300

Actual price paid per kilogram of material = 2.9549