Question

Quiz #4

Spring 2018

Emerson Company produces ceramic tea pots. Emerson allocates overhead based on the number of direct labor hours. The company is considering using a standard cost system and has developed the following standards (a batch is 100 teapots).

Standard Costs:                    

Direct Material                                    60 lbs. per batch          $ 5.00 per lb. .          

Direct Labor                                        3.0 hr. per batch         $17.00 per hr.

Variable Manufacturing Overhead     3.0 hr.                          $7.00 per hr.

Fixed Manufacturing Overhead         3.0 hr.                          $3.00 per hr.   

2018 Budgeted Data for February:

Budgeted production, 121 batches (100 tea pots each batch)

Denominator Hours, 363 DLH. (Emerson applies overhead on the basis of direct labor hours.)

Budgeted variable overhead, $2,541

Budgeted fixed overhead, $1,089.

2018 Actual Results for February:               

Direct material purchases were 4,500 lbs. at a cost of $4.70 per lb.

Direct material used was 4,100 lbs.

Direct labor costs was $3,344 at an average direct labor cost per hour of $17.60.

Total variable manufacturing overhead was $1,406.

Total fixed manufacturing overhead was $1,490.

Actual production was 60 batches.

    EXTRA CREDIT: (Worth 5 pts) Prepare journal entries for:

a.         material price and quantity variances.

b.         labor rate and efficiency variances.

Answer 1

Computation of Direct Material Price & Quantity Variance						Journal Entry
Direct Material Price Price variance	(SP-AP)AQ	($5-$4.70)*4500	$1,350	favourable		Particular	Debit	Credit
Direc Material Quantity Variance	(SQ-AQ)SP	(3600-4100)*5	($2,500)	Unfavourable		Material Price Variance
						Material Control A/c ($5*4500)	$22,500
Computation of Direct Labour Rate & Efficiency Variance						To Material Price Variance		$1,350
Direct Labour Rate variance	(SR-AR)*AH	($17-$17.60)*($3344/$17.60)	($114)	Un Favourable		To Creditor ($4.70*4500)		$21,150
Direct Labour Efficiency Variance	(SH-AH)SR	(180-190)*$17	($170)	Un Favourable
						Material Quantity Variance
						WIP (3600*$5)	$18,000
						Material Usage Variance	$2,500
						To Material Control A/c (4100*$5)		$20,500
						Labour Rate Variance
						Labour Control A/c ($17*190)	$3,230
						Labour Rate Variance	$114
						To Labour Payable A/c ($17.60*190)		$3,344
						Labour Efficiency Variance
						WIP (180*$17)	$3,060
						Labour Efficiency Variance	$170
						To Labour Control A/c (190*$17)		$3,230