CP23-35 Calculating materials and labor variances and preparing journal entries

Question

CP23-35 Calculating materials and labor variances and preparing journal entries

Assume Daniels has created a standard cost card for each job. Standard direct materials sper job include 10 software packages at a cost of $900 per package. Standard direct labor costs per job include 105 hours at $100 per hour. Daniels plans on completing 12 jobs during March 2018.

Annual direct materials costs for March included 90 software packaes at a total cost of $81,450. Actual direct labor costs included 110 hours per job at an average rate of $107 per hour. Daniels completed all 12 jobs in March.

Requirements:

1. Calculate direct materials cost and efficiency variances

2. Calculate direct labor cost and efficiency variances

3. Prepare journal entries to record the use of both materials and labor for March for the company

Please give the step-by-step processing when determining the answers. Thank you!

Explanation / Answer

Material Quantity variance = ( Std Quantity - Actual Quantity) * Std Price

= (10*12 - 90) * 900 = 27000 Favourable

Material Price Variance = ( Std Price * Actual quantity - Actual Price paid)

= (900*90 - 81450) = 450 Adverse

Total material variance = 27000 - 450 = 26550 Favourable

Labour efficiency variance = (Std Hours - Actual Hours) * std rate

= ( 105 * 12 - 110 * 12) * 100 = 6000 Adverse

Labour rate variance = (Std rate - Actual Rate) * Actual Hours

= ( 100 - 107) * 110 * 12 = 9240 Adverse

Total labour variance = 6000 + 9240 = 15240 Adverse

Journal Entries

Direct Material A/c                 Dr 81000

Material Price Variance A/c Dr        450

To Accounts Payable                               81450

Work In Process A/c   Dr               108000

To Material QuantityVariance A/c                 27000

To Direct Materials                                           81000

Work In Process A/c                Dr    126000

Labour Rate Variance a/c       Dr        9240

Labour Efficiency Variance a/c Dr      6000

To Wages Payable                                           141240

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