Question

Decena Corporation manufactures one product. It does not maintain any beginning or ending Work in Process...

Decena Corporation manufactures one product. It does not maintain any beginning or ending Work in Process inventories. The company uses a standard cost system in which inventories are recorded at their standard costs. Information concerning the direct labor standards for the company’s only product is as follows:

Inputs Standard Quantity
or Hours		 Standard Price
or Rate		 Standard Cost
Direct labor 0.90 hours $ 18.00 per hour 16.20

During the year, the company assigned direct labor costs to work in process. The direct labor workers (who were paid in cash) worked 15,830 hours at an average cost of $18.50 per hour. The company calculated the following direct labor variances for the year:

Labor rate variance $ 7,915 U
Labor efficiency variance $ 1,800 F

Assume that all transactions are recorded on the below worksheet, which is similar to the worksheet shown in your text except that it has been divided into two parts so that it fits on one page. The beginning balances in each of the accounts have been given. PP&E (net) stands for Property, Plant, and Equipment net of depreciation.

Cash Raw Materials Work in Process Finished Goods PP&E (net) = Materials Price Variance Materials Quantity Variance Labor Rate Variance Labor Efficiency Variance FOH Budget Variance FOH Volume Variance Retained Earnings
1/1 $1,070,000 $54,910 $0 $84,945 $425,600 = $0 $0 $0 $0 $0 $0 $1,635,455

When the direct labor cost is recorded, which of the following entries will be made?

Multiple Choice

a. $1,800 in the Labor Efficiency Variance column

b. ($1,800) in the Labor Rate Variance column

c. $1,800 in the Labor Rate Variance column

d. ($1,800) in the Labor Efficiency Variance column

Business   Accounting   
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Homework Answers

Answer #1

While recording direct labor cost the following entry will be Recorded

Ans:

a. $1,800 in the Labor Efficiency Variance column is correct

b. ($1,800) in the Labor Rate Variance column is in correct

Because labor rate variance is 7,915$ unfavorable

Direct Labor Rate Variance=Actual Hours*(Standard Rate-Actual Rate)

=15,830hours*(18$-18.5$)=7,915$ unfavourable

c. $1,800 in the Labor Rate Variance column incorrect due to same reason calculated at b

d. ($1,800) in the Labor Efficiency Variance column is also incorrect because labor efficiency variance is favourable variance

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