2. Using the information about the Wilson Company from the Chapter 8 lecture notes, record the standard DM, DL, and overhead costs and variances in journal entries.

Direct Labor Rate and Efficiency Variances Example 1

Wilson Productions manufactured and sold 1,000 products at $11,000 each during the past year. At the beginning of the year, production had been set at 1,200 products. At the beginning of last year, Wilson Productions set direct labor standards of 20 hours at $15 per hour for each product produced. During the year, 20,500 direct labor hours were actually worked at an average cost of $16 per hour. Calculate the companys direct labor rate and efficiency variances for the year.

Total Cost Variance Total Standard Cost: $15 20 hours 1,000 products = $300,000 Total Actual Cost: $16 20,500 hours = $328,000 Total Cost Variance: $28,000 Unfavorable - we spent more than we expected.

Rate Variance (Standard Price Actual Price) Actual Quantity (8.5 90) ($15 $16) 20,500 hours = $20,500 Unfavorable - we spent more per hour than expected

Efficiency Variance (Standard Quantity Actual Quantity) Standard Price (20,000 20,500) $15 = $7,500 Unfavorable - we used more hours than expected Reconciliation Rate variance of $20,500 U plus Efficiency variance of $7,500 U explains total cost variance of $28,000 U

Direct Materials Price and Quantity Variances Example 2

Wilson Productions manufactured and sold 1,000 products at $11,000 each during the past year. At the beginning of the year, production had been set at 1,200 products, and direct materials standards had been set at 100 pounds of direct materials at $2 per pound for each product produced. During the year, the company purchased and used 98,000 pounds of direct materials with a cost of $2.04 per pound. Calculate the companys direct materials price and quantity variances for the year.

Total Cost Variance

Total Standard Cost: $2 100 pounds 1,000 products = $200,000 Total Actual Cost: $2.04 98,000 pounds elevators = $199,920

Total Cost Variance: $80 Favorable - we spent less than we expected. Notice that we didn't multiply 98,000 by 1,000 products - it is obvious that 98,000 lbs. is the total for all the products. It would make no sense to have a standard of 100 lbs. per product and actually use 98,000 lbs. per product!!

Price Variance (Standard Price Actual Price) Actual Quantity (8.5 90) ($2 $2.04 ) 98,000 lbs. = $3,920 Unfavorable - we spent more per lb. than expected

Quantity Variance (Standard Quantity Actual Quantity) Standard Price (100,000 98,000) $2 = $4,000 Favorable - we used less per product than expected

Reconciliation Price variance of $3,920 U less Quantity variance of $4,000 F explains total cost variance of $80 F