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6. (Appendix 10B) The Lahn Company produces and sells a single product. Standards have been established for the product as follows: Direct Materials Direet Labour Actual cost and usage figures for the past month follow U’nits Produced Direct Materials Used Diroct Materials Purchased Direct Labour Cost 750 4.000 kilograms $14.400 (4.500 kgs) $11.200 (2.000 hrs) Required: Prepare journal entries to record: a) The purchase of raw materials. b) The usage of raw materials in production. c) The incurrence of direct labour cost.
Expert Answer
| General Journal | Debit | Credit | |
| a) | Raw materials inventory($3.50 per kg. x 4,500 kgs) | $15,750 | |
| Materials price variance | $1,350 | ||
| Accounts payable | $14,400 | ||
| (b) | Work in process($3.50 per kg. x 5 kgs per unit x 750 units) | $13,125 | |
| Materials quantity variance | $875 | ||
| Raw materials inventory($3.50 x 4,000) | $14,000 | ||
| (c) | Work in process($5.50 per hr. x 3 hrs per unit x 750 units) | $12,375 | |
| Labor rate variance | $200 | ||
| Labour efficiency variance | $1,375 | ||
| Accrued wages payable | $11,200 |
Explanation:
Materials price variance = AQ(AP – SP) = 4,500(($14,400/4,500 kgs.) – $3.50) = $1,350 favorable
Materials quantity variance = SP(AQ – SQ) = $3.50(4,000 – (5 x 750)) = $875 unfavorable
Labor rate variance = AH(AR – SR) = 2,000(($11,200/2,000) – $5.50) = $200 unfavorable
Labor efficiency variance = SR(AH – SH) = $5.50(2,000 – (3 x 750)) = $1,375 favorable
