Question

In: Accounting

Delta Company produces single-colored t-shirts. Materials for the shirts are dyed in large vats. After dying...

Delta Company produces single-colored t-shirts. Materials for the shirts are dyed in large vats. After dying the materials for a given color, the vat must be cleaned and prepared for the next batch of materials to be colored. The following standards for the changeover for a given batch have been established: Direct materials (2.4 lbs. @ $0.95) $2.28 Direct labor (0.75 hrs. @ $7.40) 5.55 Total prime cost $7.83 During the year, 79,500 pounds of material were purchased and used for the changeover activity. There were 30,000 batches produced, with the following actual prime costs: Direct materials $ 63,000 Direct labor $153,000 (for 22,450 hrs.)

Required:

1.) Prepare the journal entries for the (a) direct materials price variance, (b) direct materials usage variance, (c) direct labor rate variances.

2) Describe how flexible budgeting variances relate to the direct materials and direct labor variances computed in Requirements 1 and 2.

Solutions

Expert Solution

Accounts and Explaination Debit $ Credit $
1 Material Inventory $                      75,525
Material Price variance   $                  12,525
Accounts payable $                  63,000
(To record purchase of material)
2 WIP Inventory $                      68,400
Material efficiency variance   $                         7,125
Material Inventory $                  75,525
(To record usage of material)
3 WIP Inventory $                    166,500
Labor Rate variance   $                  13,130
Labor efficiency variance   $                        370
Wage Payable $                153,000
(To record direct labour cost)
Cost card
Particulars Standard cost for actual production Particulars Actual cost
Quantity & hour Rate($/lb & $/hr) Amount Quantity & hour Rate($/lb & $/hr) Amount
Direct Material 72000.00 0.95 $                68,400 Material purchased           79,500.00 0.79 $                    63,000.00
(30,000 unit * 2.4 lb) Material used           79,500.00 0.79 $                    63,000.00
Closing material                           -   $                                   -  
Direct labour 22500.00 7.40 $              166,500 Direct labour           22,450.00 6.82 $                 153,000.00
(30,000 unit * 0.75 hr) ($153,000 / 22450 hr)
Computation of variances:
1 Material Price variance = (Standard rate - Actual rate) * Actual quantity purchase
Material Price variance = ($0.95 - $0.79) X 79500 lb = $12525 (Favourable)
Material efficiency variance = (Standard Quantity - Actual Quantity used) * Standard rate
Material efficiency variance = (72000 lb - 79500 lb ) X $0.95 = $-7125 (Unfavourable)
2 Labor Rate variance = (Standard rate - Actual rate) * Actual hours
Labor Rate variance = ($7.4/hr - $6.82/hr) X 22450 hr = $13130 (Favourable)
Labor efficiency variance = (Standard Hours - Actual Hours) * Standard rate
Labor efficiency variance = (22500 hr - 22450 hr) X $7.4/hr = $370 (Favourable)
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