In: Accounting
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.
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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