In: Accounting
1. Harrod Fashions began production of a new product on June 1. The company uses a standard cost system and has established the standards indicated in Table 1 for the new product.Table 1Std. quantity or hoursStd. price or rateStandard costDirect materials2.2 yds$18 per yd$39.60Direct labor2.6 hrs10 per hr26.00 During June, the following activity was recorded relative to the new product:a. Purchased 10,000 yards of material at a total cost of $172,000.b. Produced 3,000 new units of product during the month. Also noted that the beginning and ending inventory of raw material was 2,000 and 5,000 yards, respectively.c. Production reported that 7,500 hours of labor time was worked directly on the product; the cost of this labor time was $82,500.
Required:1) For materials, compute the material price variance and material quantity variance.
2) For labor, compute the labor rate variance and labor efficiency variance.
3) Prepare the journal entries to record (a) the purchase of raw materials, (b) use of raw materials in production, and (c) incurrence of direct-labor cost for the month.
1.
Material price variance = (Actual price - Standard price) * Actual quantity purchased
Material price variance = ($172,000/10,000 - $18) * 10,000
Material price variance = ($17.2 - 18) * 10,000 = $8,000 Favorable
Material quantity variance = (Standard quantity - Actual quantity used) * Standard price
Actual quantity used = 10,000 + 2,000 - 5,000 = 7,000 yards
Material quantity variance = (3,000*2.2 - 7,000) * $18
Material quantity variance = (6,600 - 7,000) * $18 = $7,200 Unfavorable
2.
Labor rate variance = (Actual rate - Standard rate) * Actual hours
Labor rate variance = ($82,500/7,500 - $10) * 7,500
Labor rate variance = ($11 - 10) * 7,500 = $7,500 Unfavorable
Labor efficiency variance = (Standard hours - Actual hours) * Standard rate
Labor efficiency variance = (3,000*2.6 - 7,500) * $10
Labor efficiency variance = (7,800 - 7,500) * $10 = $3,000 Favorable
3.
General Journal | Debit | Credit | |
a | Raw material inventory | $172,000 | |
Accounts payable/cash | $172,000 | ||
b | Work in process inventory (7,000*$17.2) | $120,400 | |
Raw material inventory | $120,400 | ||
c | Work in process inventory | $82,500 | |
Wages payable | $82,500 |