ile in college. she began hand-knilting shawis for her dorm friends to wear whil
ID: 2479470 • Letter: I
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ile in college. she began hand-knilting shawis for her dorm friends to wear while studying. As demand grew, she r·She experiments with the type of wool that she uses, and she has great variety in the shawls she produce . She experiments with the type of wool that she uses, and she has great variety in the shawls she produces. SyMa g time and others who are new and inexperienced ol, and the pric Requiremen Requirements nce as favorable (F) or unfav 1. Calculate the price and efficiency variances for the wool, and the price and efficiency variances for direct manufacturing labor. 2. Record the journal entries for the variances incurred 3. Discuss logical explanations for the combination of variances bor that Sylvia experienced. Print (Done)Explanation / Answer
Slyvia's Shawls All Amounts in $ Direct Labor Hours for 200 shawls produced = 200 X 4 = 800 hours Direct Materials used for 200 shawls produced = 200 X 12 = 2,400 skiens 1. Direct Material Price Variance =(Standard Price per unit - Actual price per unit) X Actual units of material used Actual price for raw material purchased = $ 9,000 / 3,000 = $ 3 per skien Thus, Direct Material Price Variance = (3.30 - 3) X 3,000 = $ 900 Favorable Direct Material Efficiency Variance =(Standard Quantity required for production - Actual Quantity required for production) X Standard Rate per unit of material used = (2400 - 3000) X $ 3.30 = -$ 1,980 Unfavorable Direct Labor Price Variance = (Standard Rate per Labor hour - Actual Rate per labor hour) X Actual Hours worked Actual Rate per labor hour = $ 8,100 / 784 = 10.33 $ per labor hour Thus, Direct Labor Price Variance = (10 - 10.33) X 784 = -$ 258.72 Unfavorable Direct Labor Efficiency Variance = (Standard Hours required - Actual Hours required) X Standard Rate per labor hour = (800 - 784) X $ 10 = $ 160 Favorable 2. Journal Entries Material Efficiency Variance A/c 1980 To Material Price Variance A/c 900 To Raw Materials A/c 1080 Labor Price Variance A/c 258.72 To Labor Efficiency A/c 160 To Direct Labor A/c 98.72 3. A favorable material price variance indicates better control on the market prices, as the procurement has been done at economical rates, compared to the budgeted rate. However, with probably a shortage of materials in the market, the quantity obtained has increased, thereby leading to an unfavorable material efficiency variance. Similarly, labor has been obtained at higher rates, probably owing to a shortage of labor supply in the market. However, the force thus obtained is cost efficient, and hence has managed to produce the requisite number of shwals required in a lesser amount of time, compared to budgets.
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