Variance Analysis, Revision of Standards, Journal Entries

The Lubbock plant of Morril's Small Motor Division produces a major subassembly for a 6.0 horsepower motor for lawn mowers. The plant uses a standard costing system for production costing and control. The standard cost sheet for the subassembly follows:

Direct materials (6.0 lbs. @ $5)	$30.00
Direct labor (1.6 hrs. @ $12)	19.20

During the year, the Lubbock plant had the following actual production activity:

1. Production of subassemblies totaled 50,000 units.
2. A total of 260,000 pounds of raw materials was purchased at $4.70 per pound.
3. There were 60,000 pounds of raw materials in beginning inventory (carried at $5 per lb.). There was no ending inventory.
4. The company used 82,000 direct labor hours at a total cost of $1,066,000.

The Lubbock plant's practical activity is 60,000 units per year. Standard overhead rates are computed based on practical activity measured in standard direct labor hours.

Required:

1. Conceptual Connection: Compute the materials price and usage variances.

Materials price variance	$
Materials usage variance	$

Of the two materials variances, which is viewed as the most controllable?

2. Conceptual Connection: Compute the labor rate and efficiency variances.

Labor rate variance	$
Labor efficiency variance	$

3. Conceptual Connection: Assume that the purchasing agent for the small motors plant purchased a lower-quality raw material from a new supplier. Would you recommend that the plant continue to use this cheaper raw material?

4. Prepare all possible journal entries. For a compound transaction, if an amount box does not require an entry, leave it blank or enter "0".

	Journal
	Account & Explanation	Debit	Credit
	Record materials price variance
	Record materials usage variance
	Record payroll
	Transfer of Material usage variances and labor variances.
	Transfer materials price variance