Jim Graham Integrated Services uses a standard cost system, and calculates and r

Question

Jim Graham Integrated Services uses a standard cost system, and calculates and records variances related to direct materials and direct labor. The following information was available for March: Purchases of raw materials - actual cost $      100,000 Purchases of raw materials - standard cost          105,000 All of the purchased raw material was transferred to work in process. The materials quantity variance was unfavorable by $10,000. Direct labor - actual cost $      135,000 Direct labor - standard cost for output          132,500 The labor efficiency variance was favorable by $7,500. (a) Prepare the journal entry that is needed to record the purchase of raw materials at standard price, and the related variance. (b) Prepare the journal entry that is needed to record the transfer of raw materials to production at standard usage rates, and the related unfavorable quantity variance. (c) Prepare the journal entry that is needed to record the increase in work in process for the standard direct labor costs, and record the related rate and efficiency variances. Jim Graham Integrated Services uses a standard cost system, and calculates and records variances related to direct materials and direct labor. The following information was available for March: Purchases of raw materials - actual cost $      100,000 Purchases of raw materials - standard cost          105,000 All of the purchased raw material was transferred to work in process. The materials quantity variance was unfavorable by $10,000. Direct labor - actual cost $      135,000 Direct labor - standard cost for output          132,500 The labor efficiency variance was favorable by $7,500. (a) Prepare the journal entry that is needed to record the purchase of raw materials at standard price, and the related variance. (b) Prepare the journal entry that is needed to record the transfer of raw materials to production at standard usage rates, and the related unfavorable quantity variance. (c) Prepare the journal entry that is needed to record the increase in work in process for the standard direct labor costs, and record the related rate and efficiency variances.

Explanation / Answer

a.) Journal Entry to Purchase Raw Material

Dr. Raw Materials inventory $105,000

Cr. To Direct Material Price Variance $5,000

Cr. To Accounts Payable $100,000

b.) Journal entry to record transfer of raw material to production

Dr. Work in process $95,000

Dr. Direct materials quantity variance $10,000

Cr. Direct materials $105,000

c.) Journal Entry for Labour Variances

Dr. Work in Process $140,000

Dr. Direct Labour Rate Variance $2,500

Cr. Direct Labour Efficiency Variance $7,500

Cr. Wages Payable $135,000

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