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Chapter 23: Q13SE (page 1309)

The following direct labor variance analysis was performed for Morris.

AC × AQ \(19,800 SC × SQ \)14.00 per DLHr × 1,350 DLHr \(18,900 SC × AQ \)14.00 per DLHr × 1,800 DLHr \(11.00 per DLHr × 1,800 DLHr \)25,200 Efficiency Variance Cost Variance \(5,400 F \)6,300 U

Requirements

1. Record Morris’s direct labor journal entry (use Wages Payable).

2. Explain what management will do with this variance information.

Short Answer

Expert verified

(1) The journal entry is recorded by debiting work-in-progress by $18,900, direct labor efficiency variance by $6,300 and crediting direct labor cost variance by $5,400 and wages payable by $19,800.

(2) The management should investigate the variances.

Step by step solution

01

Journal Entry

Journal Entry

Date

Accounts and Explanation

Debit ($)

Credit ($)

Work-in-Process Inventory

18,900

Direct Labor Efficiency variance

6,300

Direct Labor Cost Variance

5,400

Wages Payable

19,800

(Direct Labor costs Incurred)

02

Usage of this variance Information by the Management

The management will now get the information that the variance has occurred but this information is not enough for the management of the company. The management should have knowledge of the reasons behind the occurrence of variances. Each of the variances will be investigated by the management and taking corrective measures to correct them.

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Most popular questions from this chapter

Drew Castello, general manager of Sunflower Manufacturing, was frustrated. He wanted the budgeted results, and his staff was not getting them to him fast enough. Drew decided to pay a visit to the accounting office, where Jeff Hollingsworth was supposed to be working on the reports. Jeff had recently been hired to update the accounting system and speed up the reporting process.

“What’s taking so long?” Drew asked. “When am I going to get the variance reports?” Jeff sighed and attempted to explain the problem. “Some of the variances appear to be way off. We either have a serious problem in production, or there is an error in the spreadsheet. I want to recheck the spreadsheet before I distribute the report.” Drew pulled up a chair, and the two men went through the spreadsheet together. The formulas in the spreadsheet were correct and showed a large unfavorable direct labor efficiency variance. It was time for Drew and Jeff to do some investigating.

After looking at the time records, Jeff pointed out that it was unusual that every employee in the production area recorded exactly eight hours each day in direct labor. Did they not take breaks? Was no one ever five minutes late getting back from lunch? What about clean­up time between jobs or at the end of the day?

Drew began to observe the production laborers and noticed several disturbing items. One employee was routinely late for work, but his time card always showed him clocked in on time. Another employee took 10­ to 15­minute breaks every hour, averaging about 1 hours each day, but still reported eight hours of direct labor each day. Yet another employee often took an extra 30 minutes for lunch, but his time card showed him clocked in on time. No one in the production area ever reported any “down time” when they were not working on a specific job, even though they all took breaks and completed other tasks such as doing clean­up and attending department meetings.

Requirements

1. How might the observed behaviors cause an unfavorable direct labor efficiency variance?

2. How might an employee’s time card show the employee on the job and working when the team member was not present?

3. Why would the employees’ activities be considered fraudulent?

Question:Use the following information to prepare a standard cost income statement for Mitchell Company for 2018.

Cost of Goods Sold (at standard) \( 366,000

Direct Labor Efficiency Variance \) 19,500 F

Sales Revenue (at standard) 570,000

Variable Overhead Efficiency Variance 3,300 U

Direct Materials Cost Variance 7,200 U

Fixed Overhead Volume Variance 12,500 F

Direct Materials Efficiency Variance 2,700 U

Selling and Administrative Expenses 71,000

Direct Labor Cost Variance 42,000 U

Variable Overhead Cost Variance 1,700 F

Fixed Overhead Cost Variance 2,100 F

Marsh Company uses a standard cost system and reports the following information for 2018:

Standards:

3 yards of cloth per unit at \(1.05 per yard

2 direct labor hours per unit at \)10.50 per hour

Overhead allocated at \(5.00 per direct labor hour

Actual:

2,600 yards of cloth were purchased at \)1.10 per yard

Employees worked 1,800 hours and were paid \(10.00 per hour

Actual variable overhead was \)1,700

Actual fixed overhead was \(7,300

Direct materials cost variance \) 130 U

Direct materials efficiency variance 420 F

Direct labor cost variance 900 F

Direct labor efficiency variance 2,100 F

Variable overhead cost variance 1,500 U

Variable overhead efficiency variance 1,500 F

Fixed overhead cost variance 600 U

Fixed overhead volume variance 1,600 F

Marsh produced 1,000 units of finished product in 2018. Record the journal entries to record direct materials, direct labor, variable overhead, and fixed overhead, assuming all expenditures were on account and there were no beginning or ending balances in the inventory accounts (all materials purchased were used in production, and all goods produced were sold). Record the journal entries to record the transfer to Finished Goods Inventory and Cost of Goods Sold (omit the journal entry for Sales Revenue). Adjust the Manufacturing Overhead account

Briefly describe how journal entries differ in a standard cost system.

Headset manufactures headphone cases. During September 2018, the company produced 106,000 cases and recorded the following cost data:

Standard Cost Information

Quantity

Cost

Direct Materials

2 parts

\( 0.16 per part

Direct Labor

0.02 hours

8.00 per hour

Variable Manufacturing Overhead

0.02 hours

11.00 per hour

Fixed Manufacturing Overhead (\)30,720 for static budget volume of 96,000 units and 1,920 hours, or \(16 per hour)

Actual Information

Direct Materials (209,000 parts @ \)0.21 per part) \( 43,890

Direct Labor(1,620 hours @ \)8.10 per hour) 13,122

Variable Manufacturing Overhead 9,000

Fixed Manufacturing Overhead 30,000

Requirements

1. Compute the cost and efficiency variances for direct materials and direct labor.

2.For manufacturing overhead, compute the variable overhead cost and efficiency variances and the fixed overhead cost and volume variances.

3. Headset’s management used better­quality materials during September. Discuss the trade­off between the two direct material variances.
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