Question

The Schuyler Corporation manufactures lamps. It has set up the following standards per finished unit for direct materials and direct manufacturing​ labor:

Direct materials: 10 lb. at $4.60 per lb.	$46.00
Direct manufacturing labor: 0.5 hour at $30 per hour	15.00

The number of finished units budgeted for January 2017 was 9,650​; 9,600 units were actually produced.

Actual results in January

20172017

were as​ follows:

Direct materials: 94,500 lb. used
Direct manufacturing labor: 4,600 hours	$144,900

Assume that there was no beginning inventory of either direct materials or finished units. During the​ month, materials purchased amounted to 96,500 ​lb., at a total cost of $463,200. Input price variances are isolated upon purchase.​ Input-efficiency variances are isolated at the time of usage.

1.	Compute the January 20172017 price and efficiency variances of direct materials and direct manufacturing labor.
2.	Prepare journal entries to record the variances in requirement 1.
3.	Comment on the January 20172017 price and efficiency variances of SchuylerSchuyler Corporation.
4.	Why might SchuylerSchuyler calculate direct materials price variances and direct materials efficiency variances with reference to different points in​ time?

Answer 1

1) Direct Material Price Variance = (Actual Qty purchased*Standard Price) - (Actual Qty purchased*Actual Price)

= (96,500 lb.*$4.60 per lb) - $463,200

= $443,900 - $463,200 = ($19,300) Unfavorable

Direct Material Efficiency Variance = (Std Qty for actual production*Std. price) - (Actual Qty used*Std price)

= [(9,600 units*10 lb)*$4.60] - (94,500 lb*$4.60)

= $441,600 - $434,700 = $6,900 Favorable

Direct Labor Price Variance = (Actual Hrs*Std Rate) - (Actual Hrs*Actual Rate)

= (4,600 hrs*$30 per hr) - $144,900

= $138,000 - $144,900 = ($6,900) Unfavorable

Direct Labor Efficiency Variance = (Std hrs for actual production*Std Rate) - (Actual Hrs*Std rate)

= [(9,600 units*0.50 hr)*$30] - (4,600 hrs*$30 per hr)

= $144,000 - $138,000 = $6,000 Favorable

2) Journal Entries to record the variances (Amount in $)

Direct Materials Control	443,900
Direct Materials Price Variance	19,300
Accounts Payable		463,200
(To record the purchase of direct materials)
Work in Process Control	441,600
Direct Materials Efficiency Variance		6,900
Direct Materials Control		434,700
(To record the usage of direct materials)
Work in Process Control	144,000
Direct Labor Price Variance	6,900
Direct Labor Efficiency Variance		6,000
Wages Payable		144,900
(To record the purchase and usage of direct labor)

3) Direct Material Price Variance is Unfavorable for $19,300 and material efficiency variance is favorable for $6,900. Direct Labor price variance is Unfavorable for $6,900 and material efficiency variance is favorable for $6,000.