Question

In: Accounting

XYZ Corporation manufactures rafts for use in swimming pools. The standard cost for material and labor...

XYZ Corporation manufactures rafts for use in swimming pools. The standard cost for material and labor is $89.20 per raft. This includes 8 kilograms of direct material at a standard cost of $5.00 per kilogram, and 6 hours of direct labor at $8.20 per hour. The following data pertain to November:

• Work-in-process inventory on November 1: none.

            • RM inventory on November 1: 2,000 kilograms for $10,040

• Work-in-process inventory on November 30: 800 units (75 percent complete as to labor; material is issued at the beginning of processing).

• Units completed: 5,600 units.

            • Units sold: 5,400 units

• Purchases of materials: 50,000 kilograms for $249,250.

• Total actual labor costs: $300,760.

• Actual hours of labor: 36,500 hours.

• Direct-material quantity variance: $ 1,500 unfavorable.

Required:

1. Compute the following amounts. Indicate whether each variance is favorable or unfavorable.

a. Direct-labor rate variance for November.

b. Direct-labor efficiency variance for November.

c. Actual kilograms of material used in the production process during November.

d. Actual price paid per kilogram of direct material in November.

e. Total amounts of direct-material and direct-labor cost transferred to Finished-Goods Inventory during November.

f. The total amount of direct-material and direct-labor cost in the ending balance of Work-in-Process Inventory at the end of November.

2. Prepare journal entries to record the following:

• Purchase of raw material.

• Adding direct material to Work-in-Process Inventory.

• Adding direct labor to Work-in-Process Inventory.

            • Recording of variances.

Solutions

Expert Solution

1a CALCULATION OF DIRECT LABOR RATE VARIANCE
A Work in process equivalent unit on November 1 0
B Units completed 100% during November 5600
C Equivalent units in work in process on Nov 30(Labor) 600 (800*0.75)
D=B+C-A Total equivalent units of production in November 6200
E=6*D Standard Labor hour for 6200 units 37200
F Standard labor rate per hour $8.20
G=E*F Standard cost $305,040
H Actual labor hour 36500
I Actual labor cost $300,760
J=I/H Actual labor rate per hour $8.24
K=H*(F-J) Labor Rate variance=Actual hour*(Standard rate-Actual Rate) ($1,460.00) (UNFAFOURABLE)
1.b CALCULATION OF DIRECT LABOR EFFICIENCY VARIANCE
L=F*(E-H) Labor efficiency variance=Standard Rate*(Standard hour-Actual hour) $           5,740 FAVOURABLE
1c. Actual kilograms of material used in the production process
Standard material quantity=8Kilograms*6200 49600 Kilograms
Direct-material quantity variance $1,500 (Unfavourable)
Standard material cost $5 per kilogram
Direct-material quantity variance=$5*(Standard Quantity-Actual quantity) ($1,500) Unfavourable variance
$5*(49600-Actual Quantity)= ($1,500)
Actual Quantity- Standard Quantity=1500/5=300
Actual Quantity of materials used in production=300+49600= 49900 Kilograms
1d. Actual price paid per kilogram of direct material
Beginning raw material Inventory $10,400
Rate=10400/2000 $5.20
Purchase of materials $249,250
Purchase rate=249250/50000 $4.99
The Rate is different.
Assuming FIFO system of inventory is used:
Price of 2000 Kilograms $10,400
Price of balance (49900-2000)=47900 kilograms $238,781.50 (47900*4.99)
Total Price paid $249,181.50
Price paid per Kilogram of direct Materials=(249181.50/49900) $4.99

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