Prepare journal entries and post them to T-accounts for all transactions in Exercise 7-25, including requirement 2. Summarize how these journal entries differ from the normal costing entries described in Chapter 5.

In exercise

Standards per Chair

Direct materials ........2square metres of input at $5 per square metre

Direct manufacturing labour ...0.5 hours of input at $10 per hour

The following data were compiled regarding actual performance: actual output units (chairs) produced, 2,000; square metres of input purchased and used, 3,700; price per square metre, $5.10; direct manufacturing labour costs, $8,820; actual hours of input, 900; labour price per hour, $9.80.

REQUIRED

1. Show your computations on the price and efficiency variances for direct materials and for direct manufacturing labour. Give a plausible explanation of why the variances occurred.

2. Suppose 6,000 square metres of materials were purchased (at $5.10 per square metre) even though only 3,700 square metres were used. Suppose further that variances are identified with their most likely control point; accordingly, direct materials price variances are isolated and traced to the purchasing department rather than to the production department. Compute the price and efficiency variances under this approach.