Genola Fashions began production of a new product on June 1. The company uses a
ID: 2443720 • Letter: G
Question
Genola Fashions began production of a new product on June 1. The company uses a standard cost system and has established the following standards for one unit of the new product:Standard Quantity
or Hours Standard Price
or Rate Standard Cost
Direct materials 2.5 yards $14 per yard $35.00
Direct labor 1.6 hours $8 per hour $12.80
During June, the following activity was recorded regarding the new product:
a. Purchasing acquired 10,000 yards of material at a cost of $13.80 per yard.
b. Production used 8,000 yards of the material to manufacture 3,000 units of the new product.
c. Production reported that 5,000 direct labor-hours were worked on the new product at a cost of $43,000.
Explanation / Answer
a. Materials price variance = AQ (AP – SP)
Materials price variance = 10,000 yards ($13.80 per yard – $14.00 per yard)
Materials price variance = $2,000 F
Materials quantity variance = SP (AQ – SQ)
Materials quantity variance = $14.00 per yard (8,000 yards – 7,500 yards)
Materials quantity variance = $7,000 U
b.
Raw Materials
140,000
Materials Price Variance
2,000
Accounts Payable
138,000
Work in Process
105,000
Materials Quantity Variance
7,000
Raw Materials
112,000
2.
a. Labor rate variance = AH (AR – SR)
Labor rate variance = 5,000 hours ($8.60 per hour – $8.00 per hour)
Labor rate variance = $3,000 Unfavorable
Labor efficiency variance = SR (AH – SH)
Labor efficiency variance = $8.00 per hour (5,000 hours – 4,800 hours)
Labor efficiency variance = $1,600 U
b.
Work in Process
38,400
Labor Rate Variance
3,000
Labor Efficiency Variance
1,600
Wages Payable
43,000
3.
Raw materials
Work in progress
Bal.
$28,000
$112,000
b
b
$105,000
a
$140,000
c
$38,400
Wages payable
Materials Price Variance
$43,000
c
$2,000
a
Labor rate variance
Labor efficiency variance
c
$3,000
c
$1,600
Materials Quantity Variance
Accounts payable
b
$7,000
$138,000
a
Raw Materials
140,000
Materials Price Variance
2,000
Accounts Payable
138,000
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