Without the journal entries Standard Costs Decomposition of

Without the journal entries

Standard Costs, Decomposition of Budget Variances, Direct Materials and Direct Labor 9-12 L02, L03 Corporation produces leather sandals. lhe company uses a standard costing system and has set the following standards for direct materials and direct labor (for one pair of sandals): Leather (3 strips S5) Direct labor (2 hrs. S6) $15 12 $27 Total prime cost During the year, Pato produced 4,000 pairs of sandals. The actual leather purchased was 12,400 strip leather. Actual direct labor was 8,400 hours at S6.25 per hour s at $4.98 per strip. There were no beginn ing or ending inventories o Required: I. Compute the costs of leather and direct labor that should have been incurred for the production of 4,000 pairs of sandals. 2. Compute the total budget variances for direct materials and direct labor 3. Break down the total budget variance for direct materials into a price variance and a usage variance. Prepare the journal entries associated with these variances

Solution

1. Cost that should have been incurred Quanitity of sandals produced = 4000 Requirement per unit of sandal     Rate Quantity     Working     Amount Leather 3 strips per sandal      $5 4000 X 3 =4000 X 3 X 5    $60,000 Direct Labor 2 hours per sandal      $6 4000 X 2 =4000 X 2 X 6    $48,000 2. Total Budget Variances Total Material Variance = Actual Quantity X Actual rate   minus   Standard Quantity X Standard rate           = (12400 X 4.98) minus (4000 X 3 X 5)           = 61,752 -60,000           =1752 unfavourable Total Labor Variance = Actual Hours X Actual rate   minus   Standard Hours X Standard rate     = (8400 X 6.25) minus (4000 X 2 X 6)     = 52,500 - 48,000     = 4500 unfavourable 3. Breakup of Direct material variance Price variance =Actual quantity X (standard rate - actual rate) =12,400 X (5 - 4.98) = 248 Usage variance = Standard rate X (standard quantity - actual quantity) = 5 X (12000 - 12400) = -2000 4. Breakup of Direct labor variances Rate variances =Actual hours X (standard rate - actual rate) =8400 X (6 - 6.25) = -2100 Efficiecy variance = Standard rate X (standard hours - actual hours) =6 X (8000 - 8400) = -2400