Genola Fashions began production of a new product on June 1. The company uses a

Question

Genola Fashions began production of a new product on June 1. The company uses a standard cost system and has established the following standards for one unit of the new product: Standard Quantity or Hours Standard Price or Rate Standard Cost Direct materials 4.0 yards $6.00 per yard $24.00 Direct labor 0.3 hours $10.80 per hour $3.24 During June, the following activity was recorded for the new product: a. Purchasing acquired 9,200 yards of material at a cost of $5.75 per yard. b. Production used 8,100 yards of the material to manufacture 1,650 units of the new product. c. Production reported that 835 direct labor-hours were worked on the new product at a cost of $9,686. Required: 1. For direct materials: a. Compute the materials price and quantity variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).) b. Prepare journal entries to record the purchase of materials and the use of materials in production. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 2. For direct labor: a. Compute the labor rate and efficiency variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).) b. Prepare a journal entry to record the incurrence of direct labor cost for the month. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 3. Post the entries you have prepared to the following T-accounts:

Explanation / Answer

1a)

DM Price Variance = ( SP AP ) × AQ

Where,
   SP is the standard unit price of direct material = $6 / yard
   AP is the actual price per unit of direct material = $5.75/yard
   AQ is the actual quantity of direct material used = 9200 yards

Direct material Price Variance = ($6 - $5.75) x 9200 = $2300 Favourable

DM Quantity Variance = ( SQ AQ ) × SP

Where,
   SQ is the standard quantity allowed = 1650 units x 4yard / unit = 6600 yards
   AQ is the actual quantity of direct material used = 8100 yards
   SP is the standard price per unit of direct material

Direct material quantity variance = (6600 – 8100)yards * $6/yard = $9000 Unfavourable

b)

For Purchase of Materials:

Raw Material Inventory....................Dr. $52900

Accounts Payable............................................Cr. $52900

For use of material in production:

Work In Process............................Dr. $ 46575

Raw Material Inventory......................................Cr. $46575

2a)

DL Rate Variance = ( SR AR ) × AH

Where,
   SR is the standard direct labor rate = $10.80/hour
   AR is the actual direct labor rate = $9686/835 hours = $11.60 / hour
   AH are the actual direct labor hours = 835 hours

Direct labour rate variance = (10.80-11.60) x 835 = $668 Unfavourable

DL Efficiency Variance = ( SH AH ) × SR

Where,
   SH are the standard direct labor hours allowed = 1650 units x 0.3 hours/unit = 495 hours
   AH are the actual direct labor hours used = 835 hours
   SR is the standard direct labor rate per hour = $10.80/hour

Direct labour Efficiency variance = (495 – 835) x $10.80 = $3618 Unfavourable

b)

Journal for incurrence of Direct labour cost:

Work In Process...........................Dr. $9686

Salaries & Wages payable........................... CR. $9686

DM Price Variance = ( SP AP ) × AQ

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