Question

Escuchar Products, a producer of DVD players, has established a labor standard for its product—direct labor: 3 hrs at $8.90 per hour. During January, Escuchar produced 14,600 DVD players. The actual direct labor used was 43,240 hours at a total cost of $391,322.

1. Compute the labor rate and efficiency variances.

2. Prepare journal entries on Jan. 31 for all activities relating to labor. Refer to the Chart of Accounts for the exact wording of account titles.

JOURNAL:

	DATE	ACCOUNT	POST. REF.	DEBIT	CREDIT
1
2
3
4

CHART OF ACCOUNTS:

ASSETS 110 Cash 120 Accounts Receivable 131 Supplies 132 Prepaid Insurance 141 Materials 142 Work in Process 143 Overhead Control 144 Finished Goods 170 Land 180 Equipment 181 Accumulated Depreciation LIABILITIES 210 Accounts Payable 220 Accrued Payroll 230 Utilities Payable 240 Lease Payable EQUITY 310 Common Stock 320 Retained Earnings

REVENUE 410 Sales EXPENSES 510 Cost of Goods Sold 511 Materials Price Variance 512 Materials Usage Variance 513 Labor Efficiency Variance 514 Labor Rate Variance 520 Insurance Expense 530 Wages Expense 540 Supplies Expense 550 Utilities Expense 560 Depreciation Expense 590 Miscellaneous Expense

Answer 1

1.

Labor Rate Variance

6,486

Unfavorable

Labor efficiency variance

4984

Favorable

Working:

Labor rate variance	Actual Hours worked *(Actual labour rate per hour *Standared labour rate per hour)
	AH*(AR-SR)

Standard Rate	$            8.90
Actual Rate	$            9.05
Actual Hours	43,240
Labor Rate Variance	=43240*(9.05-8.9)
Labor Rate Variance	6,486	Unfavorable

Labor efficiency variance	Standared labour rate per hour *(Actual Hours worked *Standared Hours worked)
	SR*(AH-SH)

Standard Hours	43,800
Actual Hours	43,240
Standard Rate	$            8.90
Labor rate variance	=8.9*(43240-43800)
Labor efficiency variance	4984	Favorable

2.  

Date	Account Title	Debit	Credit
	Work in process / Cost of goods sold =(8.9*43800)	$            3,89,820.00
	Labor rate variance	$                  6,486.00
	labor efficiency variance		$           4,984.00
	Accrued Payroll		$     3,91,322.00
	(To record direct labor cost and efficiency variance)