# Question & Answer: 6. (Appendix 10B) The Lahn Company produces and sells a single product. Standards have been established for the product as follows: Direct…..

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Question & Answer: 6. (Appendix 10B) The Lahn Company produces and sells a single product. Standards have been established for the product as follows: Direct…..
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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.

 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