Standard Costs, Decomposition of Budget Variances, Direct Materials and Direct Labor EZ Tees Corporation produces T-shirts. The company uses a standard costing system and has set the following standards for direct materials and direct labor (for one shirt): Fabric (1.5 yds. @ $2.80) $ 4.20 Direct labor (1.1 hr. @ $20) 22.00 Total prime cost $26.20 During the year, EZ Tees produced 9,500 T-shirts. The actual fabric purchased was 14,150 yards at $2.72 per yard. There were no beginning or ending inventories of fabric. Actual direct labor was 10,570 hours at $19.60 per hour. Required: 1. Compute the costs of fabric and direct labor that should have been incurred for the production of 9,500 T-shirts. Direct materials 39,900 Direct labor 209,000 2. Compute the total budget variances for direct materials and direct labor. Direct materials Favorable Direct labor 3. Break down the total budget variance for direct materials into a price variance and a usage variance. Materials Price Variance Materials Usage Variance Prepare the journal entries associated with these variances. If an amount box does not require an entry, leave it blank. Price Variance Usage Variance Feedback Check My Work Refer to the textbook, if necessary, for the applicable formulas. Companies must restate costs and inventories at the end of the year to actual cost. So, variance accounts must be closed out and their balances applied to Cost of Goods Sold (if immaterial) or prorated among Cost of Goods Sold, Work in Process, and Finished Goods. 4. Break down the total budget variance for direct labor into a rate variance and an efficiency variance. Labor Rate Variance Labor Efficiency Variance Feedback Check My Work 4. If necessary, refer to the textbook for the applicable formulas. Prepare the journal entries associated with these variances. If an amount box does not require an entry, leave it blank