Question

The finishing department of Mozart Company produced 25,000 units during November. The standard number of direct labor-hours per unit is two hours. The standard rate per hour is $37.80. During the month, 51,250 direct labor-hours were worked at a cost of $1,742,500.

1. Using T-accounts, illustrate recording the labor data in a journal entry.

2. Using T-accounts, illustrate the journal entry to dispose of any variances (close to Cost of Goods Sold).

Answer 1

Working:

Labor rate variance = AH x (AR - SR) = 51250 x ($34 - $37.80) = $194750 Favorable

AR = $1742500/51250 = $34

Labor efficiency variance = SR x (AH - SH) = $37.80 x (51250 - 50000) = $47250 Unfavorable

SH = 25000 x 2 = 50000

T-accounts:

Work in Process Inventory
1	1890000
Labor Rate Variance
2	194750	194750	1
Labor Efficiency Variance
1	47250	47250	2
Wages Payable
		1742500	1
Cost of Goods Sold
2	47250	194750	2