Question

Problem 10-46 Direct-Material Variances; Journal Entries (Appendix) (LO 10-1, 10-3, 10-9)

Rocky Mountain Camping Equipment, Inc. has established the following direct-material standards for its two products.

		Standard Quantity				Standard Price
Standard camping tent			8	yards		$	3.00	per yard
Deluxe backpacking tent			3	yards		$	5.00	per yard

During March, the company purchased 6,000 yards of tent fabric for its standard model at a cost of $19,200. The actual March production of the standard tent was 300 tents, and 2,450 yards of fabric were used. Also during March, the company purchased 3,000 yards of the same tent fabric for its deluxe backpacking tent at a cost of $14,100. The firm used 1,140 yards of the fabric during March in the production of 380 deluxe tents.

Required:

Compute the direct-material purchase price variance and quantity variance for March.

Prepare journal entries to record the purchase of material, use of material, and incurrence of variances in March.

a. Record the purchase of direct material on account and the direct-material purchase price variance.

b. Record the addition of direct-material cost to work-in-process inventory and the direct-material quantity variance

Answer 1

Answer:

Standard camping tent :

Standard Price = $3.00 per yard

Actual Price = $19,200 / 6,000 = $3.20 per yard

Standard quantity = 300 * 8 = 2,400 yards

Actual quantity = 2,450 yards

Deluxe backpacking tent:

Standard Price = $5.00 per yard

Standard quantity = 380 * 3 = 1,140 yards

Actual Price = $14,100 / 3,000 = $4.70 per yard

Actual quantity used = 1,140 yards

Standard camping tent:

Direct-material purchase price variance = (Standard Price ? Actual Price) × Actual Quantity purchased

= ($3.00 - $3.20) * 6,000 = 1,200 Unfavorable

Direct-material quantity variance = (Standard Quantity ? Actual Quantity used) × Standard Price

= (2,400 -2,450) * $3.00 = $150 unfavorable

Deluxe backpacking tent:

Direct-material purchase price variance = ($5.00 - $4.70) * 3,000 = $900 Favorable

Direct-material quantity variance = (1,140 -1,140) * $5.00 = $0

Answer a:

Record the purchase of direct material on account and the direct-material purchase price variance

Answer b:

Record the addition of direct-material cost to work-in-process inventory and the direct-material quantity variance