nformation Hanley\'s direct labor costs for January 2010 is as follows: Actual d
ID: 2380483 • Letter: N
Question
nformation Hanley's direct labor costs for January 2010 is as follows:Actual direct labor rate $ 7.50
Standard direct labor hours allowed 11,000
Actual direct labor hours 10,000
Direct labor rate variance $ 5,500
a. compute the standard direct labor rate in January.
b. Compute the labor efficiency variance in January.
c. Prepare the journal entry to accuse direct labor cost to record the labor variances for January.
d. Prepare the journal entry to dispose of the January labor variances, assuming that they are insignificant.
Explanation / Answer
Direct Labor Rate Variance (DLRV) Formula: [Labor rate variance = (Actual hours worked × Actual rate) - (Actual hours worked × Standard rate)] ie DLRV = (10000*$7.50) - (10000*Std Rate) = 5500F = -5500 ie Std DIr Lab Rate = (75000+5500)/10000 = 80500/10000 = $8.05.....Ans Formula of labor efficiency variance (LEV) : [Labor efficiency variance = (Actual hours worked × Standard rate) - (Standard hours allowed × Standard rate)] ie LEV = (10000*$8.05) - (11000*$8.05) = 80500-88550 = 8050F Jan'10 Factory Labor Dr 80,500 Direct Labor Rate Variance Cr 5500 Wages Payable Cr 75,000 Record Direct Labor rate variance Jan'10 Work-in-Process Inventory Dr 88550 Direct Labor Efficiency Variance Cr 8050 Factory Labor Cr 80500 Assign Direct Labor eff var to Work-in Process Inventory Insignificant Variance: At year-end, adjusting entries are made to eliminate standard cost variances. The entries depend on whether the variances are, in total, insignifi cant or signifi cant. If the combined impact of the variances is insignifi cant, unfavorable variances are closed as debits to Cost of Goods Sold; favorable variances are credited to Cost of Goods Sold. Th us, unfavorable variances decrease operating income because of the higher-than-expected costs whereas favorable variances increase operating income because of the lower-than-expected costs. Even if the year’s entire production has not been sold yet, this variance treatment is based on the immateriality of the amounts involved. Jan'10 COGS Dr 13,550 Direct Labor Efficiency Variance Cr 8050 Direct Labor Rate Variance Cr 5500 favorable variances are credited to Cost of Goods Sold here are answers for first two parts although i am sure you will be able to do by yourself after reading the above explanation a. compute the standard direct labor rate in January. =(75000+ 5500) /10000 = 8.05 dollars DLRV = 5500 b. Compute the labor efficiency variance in January. =80500-88550= 8050F
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