Question
The Schuyler Corporation manufactures lamps. It has set up the following standards per finished unit for direct materials and direct manufacturing labor: The number of
The Schuyler Corporation manufactures lamps. It has set up the following standards per finished unit for direct materials and direct manufacturing labor: The number of finished units budgeted for January 2020 was 10,000 ;9,850 units were actually produced.
Direct materials: 10 lb. at $4.50 per lb. | $45.00 |
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Direct manufacturing labor: 0.5 hour at $30 per hour | 15.00 |
Actual results in January 2020 were as follows:
Direct materials: 98,055 lb. used |
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Direct manufacturing labor: 4,900 hours | $154,350 |
Assume that there was no beginning inventory of either direct materials or finished units. During the month, materials purchased amounted to 100,000 lb., at a total cost of $465,000. Input price variances are isolated upon purchase. Input-efficiency variances are isolated at the time of usage.
Compute the January 2020 price and efficiency variances of direct materials and direct manufacturing labor. | |
2. | Prepare journal entries to record the variances in requirement 1. |
3. | Comment on the January 2020 price and efficiency variances of Schuyler Corporation. |
4. | Why might Schuyler calculate direct materials price variances and direct materials efficiency variances with reference to different points in time? |
Actual input | Budgeted price | = | Cost | ||
Direct materials (purchases) |
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Direct materials (usage) |
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Direct manufacturing labor |
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Next determine the formula and calculate the costs for the flexible budget.
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Direct materials |
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Direct manufacturing labor |
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Now compute the price and efficiency variances for direct materials and direct manufacturing labor. Label each variance as favorable (F) or unfavorable (U).
| Price | Efficiency | ||
| variances | variances | ||
Direct materials |
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Direct manufacturing labor |
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Requirement 2. Prepare journal entries to record the variances in requirement 1.
Prepare the journal entry for the direct materials price variance. (Record debits first, then credits. Exclude explanations from any journal entries.)
Journal Entry | ||||
Date | Accounts | Debit | Credit | |
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Next prepare the journal entry for direct materials efficiency variance.
Journal Entry | ||||
Date | Accounts | Debit | Credit | |
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Now prepare the journal entry for direct manufacturing labor price and efficiency variances.
Journal Entry | ||||
Date | Accounts | Debit | Credit | |
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Comment on the January 2020 price and efficiency variances of Schuyler Corporation. A key point is that all of these efficiency variances are the direct manufacturing labor efficiency variance is the direct materials efficiency variance is likely to be insignificant significant. They are so big that they are meaningful msmall as to be nearly meaningless. Fluctuations about standards are bound to occur in a predetermined random fashion. Practically, from a control viewpoint, a standard is a band or range of acceptable performance rather than a single-figure measure. Requirement 4. Why might Schuyler calculate direct materials price variances and direct materials efficiency variances with reference to different points in time? The purchasing point is where responsibility for
efficiency variances price variances is found most often. The production point is where responsibility for efficiency variances price variances is found most often. Schuyler Corporation may calculate variances at different points in time to tie in with
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