Question

Dash Company adopted a standard costing system several years ago. The standard costs for the prime costs (i.e., direct materials and direct labor) of its single product are:

Material	(5 kilograms × $6.00 per kilogram)	$	30.00
Labor	(6 hours × $18.50 per hour)		111.00

All materials are added at the beginning of processing. The following data were taken from the company’s records for November:

In-process beginning inventory			None
In-process ending inventory		760	units, 75% complete as to direct labor
Units completed		5,800	units
Budgeted output		6,200	units
Purchases of materials		52,000	kilograms
Total actual direct labor costs	$	620,000
Actual direct labor hours		36,700	hours
Materials usage variance	$	1,800	Unfavorable
Total materials variance	$	760	Unfavorable

Required:

1. Compute for November:

a. The direct labor efficiency variance. Is this variance favorable (F) or unfavorable (U)?

b. The direct labor rate variance. Is this variance favorable (F) or unfavorable (U)?

c. The actual number of kilograms of material used in the production process during the month.

d. The actual price paid per kilogram of material during the month, the company calculates the direct materials price variance at point of purchase.

e. The amount of direct materials cost and direct labor cost transferred to the Finished Goods Inventory account.

f. The total amount of direct materials cost and direct labor cost in the Work-in-Process Inventory account at the end of the month.

2. Prepare journal entries to record all transactions, including the variances in requirement 1.

Answer 1

1) a) Labor Efficiency variance = (Std Labor hrs - Actual Labor hrs)*Std labor rate per hour

Actual units completed as to direct labor = Units competed+Ending WIP completed as to Labor

= 5,800 units+(760 units*75%) = 6,370 units

Std labor hrs for Actual units completed = 6,370 units*6 hrs = 38,220 hrs

Labor Efficiency Variance = (38,220 hrs - 36,700 hrs)*$18.50 per hour

= $28,120 Favorable

1) b) Labor rate variance = (Std rate*Actual hrs) - (Actual rate*Actual hrs)

= ($18.50*36,700 hrs) - Actual Labor cost

= $678,950 - $620,000 = $58,950 Favorable

1) c) Actual kgs of material used = Std material allowed+Material usage variance (in kgs)

Std material allowed = (5,800 units+760 units)*5 kgs per unit = 32,800 kgs

Materials usage variance (in kgs) = $1,800/$6 per kg = $300

Actual kgs of material used = 32,800 kgs+300 kgs = 33,100 kgs

1) d) Material Price Variance = Total Materials Variance - Materials Usage Variance

= $760 Unfavorable - $1,800 Unfavorable = $1,040 Favorable

Actual Price per kg = Std Price per kg - Material Price Variance per kg

= $6.00 per kg - (Materials Price Variance/Materials Purchased)

= $6.00 - ($1,040/52,000 Kgs) = 5.98 per kg