Question

Barley Hopp, Inc., manufactures custom-ordered commemorative beer steins. Its standard cost information follows:

	Standard Quantity		Standard Price (Rate)			Standard Unit Cost
Direct materials (clay)	1.7	lbs.	$	1.20	per lb.	$	2.04
Direct labor	1.9	hrs.	$	12.00	per hr.		22.80
Variable manufacturing overhead (based on direct labor hours)	1.9	hrs.	$	1.70	per hr.		3.23
Fixed manufacturing overhead ($270,300 ÷ 106,000 units)							2.55

Barley Hopp had the following actual results last year:

Number of units produced and sold		95,600
Number of pounds of clay used		187,520
Cost of clay	$	215,648
Number of labor hours worked		156,640
Direct labor cost	$	2,192,960
Variable overhead cost	$	297,616
Fixed overhead cost	$	250,000

Required:
1 & 2. Prepare the journal entries to record the direct materials, direct labor and related variances for Barley Hopp. Assume the company purchases direct materials as needed and does not maintain any ending inventories

Answer 1

Ans:

Direct Materials Price Variance= Standard rate per pound- Actual rate per pound)* number of pounds of clay used

=> (1.20-{215,648/187,520)*187,520

=> {1.20-1.15)*187,520

=> 0.05*187,520

=> 9,376 Favorable

Direct materials Quantity Variances= {standard quantity- Actual Quantity used)*Standard Rate per pound

=> {1.7*95,600}-187,520)*1.20

=> 162,520-187,520)*1.20

=> 25,000*1.20

=> 30,000 Unfavorable

Direct Materials Spending Variance= 30,000-9,376

=> 20,624 unfavorable

Direct Labor efficiency variance= Total Standard hours-total Actual hours)*Standard rate per hour

=> 1.90*95,600-156,640)*12.00

=> 181,640-156,640)*12

=> 25,000*12

=> 30,000 Favorable

Direct labor Rate variance= Standard rate per hour- actual rate per hour)* number of hours worked

=> $12-{2,192,960/156,640)*156,640

=> 12-14)*156,640

=> 2*156,640

=> 313,280 unfavorable

Direct labor spending Variance= 313,280-30,000

=> $ 283,280 unfavorable

Journal Entries

S.no	Account title and explanation	Debit($)	Credit($)
	work in Process{95,600*2.04)	195,024
	Materials Quantity Variance	30,000
	Materials price variance		9,376
	Accounts Payable		215,648
	(to record direct materials and variances)
	Work in Process{95,600*22.80)	2,179,680
	Labor price Variance	313,280
	Labor Quantity variance		30,000
	Wages payable		2,462,960
	(to record direct labor and variance)