Canandaigua Container Company manufactures recyclable soft-drink cans. A unit of

Question

Canandaigua Container Company manufactures recyclable soft-drink cans. A unit of production is a case of 12 dozen cans. The following standards have been set by the production-engineering staff and the controller. Direct Labor Direct Material: Quantity, 0.18 hour Quantity, 7 kilograms Rate, $9.00 per hour kilogram Price, $0.46 per Actual material purchases amounted to 234,000 kilograms at $0.525 per kilogram. Actual costs incurred in the production of 26,000 units were as follows: Direct labor: $46,930 for 4,940 hours Direct material: kilograms $102,375 for 195,000

Explanation / Answer

Solution:

First of all we need to calculate the material variance (price and quantity) and labor variance (rate and efficiency).

Direct Material Price Variance

Actual Price (AP)

$0.525

per kilogram

Standard Price (SP)

$0.460

per kilogram

Variance or Difference in Price (AP - SP)

$0.065

per pound

x Actual Quantity PURCHASED

234000

kilogram

Material Price Variance

$15,210

Unfavorable

Direct Material Quantity Variance

Standard Quantity Allowed for actual production:

Actual Production/Activity

26000

Units

x Allowed Standard Quantity Per Unit

7

kilogram

Total Standard Quantity Allowed for actual production (SQAP)

182000

kilogram

Actual Quantity USED (AQU)

195000

kilogram

Variance or Difference in Quantity (AQU - SQAP)

13000

kilogram

x Standard Price (SP)

$0.46

per kilogram

Material Quantity Variance

$5,980

Unfavorable

Labor Rate Variance

Actual Hourly Rate (AHR) ($46,930 / 4940 hrs)

$9.50

Per Hour

Standard Hourly Rate (SHR)

$9.00

Per Hour

Variance or Difference in Rate

$0.50

Per Hour

x Actual Labor Hours worked

4940

Hours

Labor Rate Variance

$2,470

Unfavorable

Labor Efficiency Variance

Standard Hours Allowed for actual production:

Actual Production

26000

Units

x Allowed Standard Hours Per Unit

0.18

hours

Total Standard Hours Allowed for actual production (SHAP)

4680

hours

Actual Labor Hours Worked (AH)

4940

hours

Variance or Difference in Hours (AH - SHAP)

260

hours

x Standard Hourly Rate (SHR)

$9

per hour

Labor Efficiency Variance

$2,340

Unfavorable

Now we need to pass journal entry for the variance.

Transaction

Account Titles and Explanation

Debit

Credit

1

Material Price Variance

Materials (Actual Qty purchased 234,000*$0.46))

$107,640

Material Price Variance (Bal. fig)

$15,210

Accounts Payable (234,000*.525)

$122,850

2

Material quantity variance

Work In Process (182,000*0.46)

$83,720

Materials quantity variance (13,000*0.46)

$5,980

Materials (195,000*0.46)

$89,700

3

Labor Variances

Work IN Process (Std Hours Allowed 4680*SR $9)

$42,120

Labor Efficiency Variance (Diff. in hours 260*$9))

$2,340

Labor Rate Variance (4940*$0.50 diff. in rate)

$2,470

Wages Payable (4940*9.50)

$46,930

4

Cost of Goods Sold

$26,000

Material Price Variance

$15,210

Material Quantity Variance

$5,980

Labor Efficiency Variance

$2,340

Labor Rate Variance

$2,470

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Direct Material Price Variance

Actual Price (AP)

$0.525

per kilogram

Standard Price (SP)

$0.460

per kilogram

Variance or Difference in Price (AP - SP)

$0.065

per pound

x Actual Quantity PURCHASED

234000

kilogram

Material Price Variance

$15,210

Unfavorable

Direct Material Quantity Variance

Standard Quantity Allowed for actual production:

Actual Production/Activity

26000

Units

x Allowed Standard Quantity Per Unit

7

kilogram

Total Standard Quantity Allowed for actual production (SQAP)

182000

kilogram

Actual Quantity USED (AQU)

195000

kilogram

Variance or Difference in Quantity (AQU - SQAP)

13000

kilogram

x Standard Price (SP)

$0.46

per kilogram

Material Quantity Variance

$5,980

Unfavorable

Labor Rate Variance

Actual Hourly Rate (AHR) ($46,930 / 4940 hrs)

$9.50

Per Hour

Standard Hourly Rate (SHR)

$9.00

Per Hour

Variance or Difference in Rate

$0.50

Per Hour

x Actual Labor Hours worked

4940

Hours

Labor Rate Variance

$2,470

Unfavorable

Labor Efficiency Variance

Standard Hours Allowed for actual production:

Actual Production

26000

Units

x Allowed Standard Hours Per Unit

0.18

hours

Total Standard Hours Allowed for actual production (SHAP)

4680

hours

Actual Labor Hours Worked (AH)

4940

hours

Variance or Difference in Hours (AH - SHAP)

260

hours

x Standard Hourly Rate (SHR)

$9

per hour

Labor Efficiency Variance

$2,340

Unfavorable

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