8. Recording journal entries for direct labor variances Rocky Mountain Outdoors

Question

8. Recording journal entries for direct labor variances

Rocky Mountain Outdoors produces backpacks for a variety of purposes. Rocky Mountain's best-selling product is the Outbacker model. The following table summarizes the standard costs for the Outbacker.

Standard

Price

Standard Quantity

per Unit

Standard Cost

per Unit

During October, the company incurred actual direct labor costs of $26,568.75 for 2,725 hours of direct labor in the production of 900 outbacker backpacks.

Prepare the journal entry that Rocky Mountain Outdoors should record for the direct labor costs incurred in the production of the Outbacker backpacks. Assume that the company initially credits all wages to the Wages Payable account.

A. Please complete the following:

                           Journal

Manufacturing Costs

Standard

Price

x

Standard Quantity

per Unit

=

Standard Cost

per Unit

Direct Materials $ 18.25 per sq.yd. 1.8 sq.yd. $32.85 Direct labor $9.50 per hr. 2.8 hrs. 26.60 Factory overhead $5.25 per hr. 2.8 hrs. 14.70 Total standard cost per backpack $74.15

Explanation / Answer

Direct labor rate variance = ( Std rate - Actual rate ) * actual hrs

                                           = 9.5*2725 - $26,568.75

                                          = 681.25(U)

Direct labor efficieny varaince

= (2.8 *900 - 2725)$9.50

= $681.25(U)

Journal entry

Work in process $23,940 Direct labor rate variance        681.25 Direct labor efficiency varaince     1,947.50 To Wages payable $26,568.75

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