HPC, Inc. has developed a standard pricing system for its products. The variable

Question

HPC, Inc. has developed a standard pricing system for its products. The variable cost standards (based on expected output of 5000 units) are:

3# direct material per unit @ $5 per pound $ 15.00
2 hours direct labor @ $11 per hour 22.00

In January 20XX, the firm actually produced 5300 units and actual manufacturing costs were as follows:

Direct material purchased & used 16,700 # @ $4.90 per pound
Direct labor paid 10,650 hours @ $11.15 per hour
a. Compute all direct material and direct labor variances. Be sure to note if a variance is favorable (F) or unfavorable (U). Note that you need to consider the # of units actually produced when computing your efficiency variances.
b. Assume that all direct material was purchased on account and those purchases are only recorded at the end of the month. Also assume that the firm uses a standard cost accounting system (with variances recorded). Prepare the journal entry for direct materials purchased during the month.
c. Assume that all direct material used is only recorded at the end of the month. Also assume that the firm uses a standard cost accounting system (with variances recorded). Prepare the journal entry for direct materials used during the month.

Explanation / Answer

5000 Units

Per Unit

For 5300 Units

Produced Output

5300 Units

Direct Material (4.9 per Pound * 3)

4.9 per Pound

14.7

16700 pounds

81830

Direct Labour

11.15 Per Hour

22.3

10650 Hours

118747.5

Standards

Actuals

Per Unit

Per Unit

Debit $

Credit $

Budgets Expected Output

5000 Units

Direct Material (3 Pounds * $5) $15 Direct Labour (2 Hours * 11) $22

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