Question

Haversham Corporation produces dress shirts. The company uses a standard costing system and has set the following standards for direct materials and direct labor (for one shirt):

Fabric (1.5 yds. @ $2.80)	$4.20
Direct labor (1.1 hr. @ $20)	22.00
Total prime cost	$26.20

During the year, Haversham produced 9,700 shirts. The actual fabric purchased was 14,450 yards at $2.76 per yard. There were no beginning or ending inventories of fabric. Actual direct labor was 10,790 hours at $19.50 per hour.

. Break down the total budget variance for direct materials into a price variance and a usage variance.

Materials Price Variance	$	Favorable
Materials Usage Variance	$	Favorable

3

Prepare the journal entries associated with these variances. If an amount box does not require an entry, leave it blank or enter "0".

Price Variance	Materials
	Direct Materials Price Variance
	Accounts Payable
Usage Variance	Work in Process
	Direct Materials Usage Variance
	Materials

4. Break down the total budget variance for direct labor into a rate variance and an efficiency variance.

Labor Rate Variance	$	Favorable
Labor Efficiency Variance	$	Unfavorable

4.

Prepare the journal entries associated with these variances. If an amount box does not require an entry, leave it blank or enter "0".

	Work in Process
	Direct Labor Efficiency Variance
	Direct Labor Rate Variance
	Wages Payable

Answer 1

• Workings

Actual DATA for		9700	units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct Material	14450	$                   2.76	$           39,882.00
Direct labor	10790	$                19.50	$        210,405.00

Standard DATA for		9700	units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct Material	( 1.5 yards x 9700 units)=14550 yards	$                   2.80	$       40,740.00
Direct labor	( 1.1 hours x 9700 units)=10670 hours	$                20.00	$     213,400.00

• Requirements

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                                2.80	-	$                       2.76	)	x	14450
	578
	Variance		$                  578.00			Favourable-F
Material Usage Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	14550	-	14450	)	x	$                           2.80
	280
	Variance		$                  280.00			Favourable-F

--Journal entry

Accounts Titles	Debit	Credit
Material	$                                                  40,460.00
Direct Material Price variance		$              578.00
Accounts payable		$        39,882.00

Work In Process Inventory	$                                                  40,740.00
Direct Material Usage variance		$                                                        280.00
Materials		$        40,460.00

• Requirements

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                              20.00	-	$                    19.50	)	x	10790
	5395
	Variance		$              5,395.00			Favourable-F
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	10670	-	10790	)	x	$                        20.00
	-2400
	Variance		$              2,400.00			Unfavourable-U

--Journal entry

Work in Process	$ 213400
Direct Labor Efficiency Variance	$ 2400
Direct Labor Rate Variance		$ 5395
Wages Payable		$ 210,405