0324673906 Direct Materials and Direct Labor Variances 9-3 Dulce Company produce
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Question
0324673906 Direct Materials and Direct Labor Variances 9-3 Dulce Company produces a popular candy bar called Rico. The candy is produced in Costa Rica and exported to the United States. Recently, the company adopted the fol- lowing standards for one 5-ounce bar of the candy: L03 Direct materials (5.5 oz.$0.04) S0.22 0.13 S0.35 Direct labor (0.05 hr. $2.60) Standard prime cost During the first week of opcration, the company experienced the following actual results: a. Bars produced: 100,000 b. Ounces of direct materials purchased: 570,000 ounces at $O.045 C. d. Direct labor: 5,200 hours at $2.55 are no beginning or ending inventories of direct materials Required: I. Compute price and usage variances for direct materials 2. Compute the rate variance and the efficiency variance for direct labor 3. Prepare the journal entries associated with direct materials and direct laborExplanation / Answer
1)
Calculate direct material price variance
Direct material Price variance = Actual quantity*(standard price – actual price)
= 570,000*(0.040-0.045)
= 570000*(-0.005)
= $ 2,850 Unfavorable
Since actual price is more than standard price, hence unfavorable by the amount 285
Calculate direct material usage variance
Direct material Usage variance = Standard price*(Actual quantity - Standard quantity)
=0.040* (570,000 - 5.5*100,000)
= 0.040*(20,000)
= $800 Unfavorable
Since actual quantity is more than standard quantity, hence the variance is unfavorable by the amount $800
2.
Calculate direct labor rate variance
Rate variance = Actual hours*(Actual rate - Standard rate)
=5,200* ($2.55 - $2.60)
= 5200 * ($0.05)
= $ 260 Favorable
Since actual rate is less than standard rate, hence rate variance is favorable by the amount $260
Calculate direct labor efficiency variance:
Efficiency variance = Standard rate*(Actual hours - Standard hours)
=2.60* (5,200 - 0.05*100,000)
= 2.60*(5200-5000)
=2.6*(200)
= $520 Unfavorable
Since actual hours is more than standard hours, hence variance is favorable by the amount $520
Date
Accounts and Explanation
Debit
Credit
Direct material inventory(570000*0.04)
22800
material price variance
2850
Accounts payable (570000*0.045)
25650
( To record price variance)
Inventory finished goods(550000*0.04)
22000
material usage variance
800
Material inventory (570000*0.04)
22800
( To record usage variance
Labor variance
Inventory Finished goods(5000*2.6)
13000
labor efficiency variance
520
Labor rate variance
260
salaries payable (5200*2.55)
13260
Date
Accounts and Explanation
Debit
Credit
Direct material inventory(570000*0.04)
22800
material price variance
2850
Accounts payable (570000*0.045)
25650
( To record price variance)
Inventory finished goods(550000*0.04)
22000
material usage variance
800
Material inventory (570000*0.04)
22800
( To record usage variance
Labor variance
Inventory Finished goods(5000*2.6)
13000
labor efficiency variance
520
Labor rate variance
260
salaries payable (5200*2.55)
13260
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