Question

J Company produces copy paper. The company has established the following direct materials and direct labor standards for one case of copy paper:

Paper pulp (3 lbs. @ $0.40) $ 1.20

Labor (2 hrs. @ $12) 24.00

Total prime cost $25.20

During the first quarter of the year, J Company produced 45,000 cases of copy paper. The company purchased and used 135,700 pounds of paper pulp at $0.38 per pound. Actual direct labor used was 91,000 hours at $12.10 per hour.

Required:

1. Calculate the direct materials price and usage variances.

2. Calculate the direct labor rate and efficiency variances.

3. Prepare the journal entries for the direct materials and direct labor variances.

Note: please provide your explanations on spreadsheet or Word as written solutions are difficult to read

Answer 1

solution 1:

Direct Material Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AQ *	AP =				AQ *	SP =				SQ *	SP =
135700	$0.38	$51,566.00			135700	$0.40	$54,280.00			135000	$0.40	$54,000.00
			$2,714.00	F				$280.00	U
			Direct Material Price Variance					Direct Material Qty variance
Direct material price variance					$2,714.00	F
Direct material quantity variance					$280.00	U
Direct material cost variance					$2,434.00	F

Solution 2:

Direct Labor Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
91000	$12.10	$1,101,100.00			91000	$12.00	$1,092,000.00			90000	$12.00	$1,080,000.00
			$9,100.00	U				$12,000.00	U
			Direct Labor rate Variance					Direct Labor Efficiency Variance
Direct Labor Rate variance					$9,100.00	U
Direct Labor Efficiency variance					$12,000.00	U
Total direct labor variance					$21,100.00	U

Solution 3:

Journal Entries - J Company
Event	Particulars	Debit	Credit
1	Work In Process Dr	$54,000.00
	Direct material quantity variance Dr	$280.00
	To Accounts payable		$51,566.00
	To Direct material price variance		$2,714.00
	(To record purchase and use of material)
2	Work In Process Dr	$1,080,000.00
	Direct labor rate variance Dr	$9,100.00
	Direct labor efficiency variance Dr	$12,000.00
	To Factory Wages payable		$1,101,100.00
	(To record factory labor cost incurred)