Question
Choi Company produces a single product. The company has set the following standards for materials and labour: Direct Materials Direct Labour Standard quantity or hours
Choi Company produces a single product. The company has set the following standards for materials and labour:
| Direct Materials | Direct Labour |
Standard quantity or hours per unit | ? kilograms | 2 hours |
Standard price or rate | ? per kilogram | $12 per hour |
Standard cost per unit | ? | $24 |
During the month of April, the company purchased 6,000 kilograms of direct materials at a cost of $18,000. All of this material was used in the production of 1,625 units of product. Direct labour cost totalled $34,500 for the month. The following variances have been computed:
Materials price variance | $1,500 unfavourable |
Total materials variance | $125 unfavourable |
Labour efficiency variance | $3,000 favourable |
Required: (YOU MUST SHOW ALL OF YOUR WORK FOR FULL MARKS) a) [5 Marks] For direct materials, compute:
(i) the standard price per kilogram;
(ii) the materials quantity variance;
(iii) the standard quantity allowed for materials in total for the month's production; and (iv) the standard quantity per unit of product.
b) [2 Marks] An unfavourable material quantity variance, could be the caused by a favourable materials price variance. Is this possible? If so, please provide an example of how this could happen.
c) [4 Marks] For direct labour, compute:
(i) the actual direct labour cost per hour for the month; and
(ii) and the labour rate variance. Is the labour rate variance favourable or unfavourable?
d) [2 Marks] Suppose that Choi Company enters its Standard Costs and Variances into its accounting records. The price variance would be entered into the books when the materials purchase is made. What would the Journal Entry be to record the purchase of materials on account for the month of April?
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