0324673906 Direct Materials and Direct Labor Variances 93 Du

Direct Materials and Direct Labor Variances 9-3 Dulce Company produces a popular candy bar called Rico. The candy is produced in Costa Rica and exported to the United States. Recently, the company adopted the fol- lowing standards for one 5-ounce bar of the candy: L03 Direct materials (5.5 oz.$0.04) S0.22 0.13 S0.35 Direct labor (0.05 hr. $2.60) Standard prime cost During the first week of opcration, the company experienced the following actual results: a. Bars produced: 100,000 b. Ounces of direct materials purchased: 570,000 ounces at $O.045 C. d. Direct labor: 5,200 hours at $2.55 are no beginning or ending inventories of direct materials Required: I. Compute price and usage variances for direct materials 2. Compute the rate variance and the efficiency variance for direct labor 3. Prepare the journal entries associated with direct materials and direct labor

Solution

1)

Calculate direct material price variance

Direct material Price variance = Actual quantity*(standard price – actual price)

= 570,000*(0.040-0.045)

= 570000*(-0.005)

= $ 2,850 Unfavorable

Since actual price is more than standard price, hence unfavorable by the amount 285

Calculate direct material usage variance

Direct material Usage variance = Standard price*(Actual quantity - Standard quantity)

=0.040* (570,000 - 5.5*100,000)

= 0.040*(20,000)

= $800 Unfavorable

Since actual quantity is more than standard quantity, hence the variance is unfavorable by the amount $800

2.

Calculate direct labor rate variance

Rate variance = Actual hours*(Actual rate - Standard rate)

=5,200* ($2.55 - $2.60)

= 5200 * ($0.05)

= $ 260 Favorable

Since actual rate is less than standard rate, hence rate variance is favorable by the amount $260

Calculate direct labor efficiency variance:

Efficiency variance = Standard rate*(Actual hours - Standard hours)

=2.60* (5,200 - 0.05*100,000)

= 2.60*(5200-5000)

=2.6*(200)

= $520 Unfavorable

Since actual hours is more than standard hours, hence variance is favorable by the amount $520

Date

Accounts and Explanation

Debit

Credit

Direct material inventory(570000*0.04)

22800

material price variance

2850

Accounts payable (570000*0.045)

25650

( To record price variance)

Inventory finished goods(550000*0.04)

22000

material usage variance

800

Material inventory (570000*0.04)

22800

( To record usage variance

Labor variance

Inventory Finished goods(5000*2.6)

13000

labor efficiency variance

520

Labor rate variance

260

salaries payable (5200*2.55)

13260

Date	Accounts and Explanation	Debit	Credit
	Direct material inventory(570000*0.04)	22800
	material price variance	2850
	Accounts payable (570000*0.045)		25650
	( To record price variance)
	Inventory finished goods(550000*0.04)	22000
	material usage variance	800
	Material inventory (570000*0.04)		22800
	( To record usage variance
Labor variance
	Inventory Finished goods(5000*2.6)	13000
	labor efficiency variance	520
	Labor rate variance		260
	salaries payable (5200*2.55)		13260