Fuller company produces paper to wels. The company has established the following

Question

Fuller company produces paper to wels. The company has established the following direct materials and direct labor standards for case of paper towels: During the first quarter of the year, Fuller produced 45,000 cases of paper towels. The company purchased and used 135,700 pounds of paper pulp at $.38 per pound. Actual direct labor used was 91,000 hous $12.10 per hour. a)Compute the direct material price and quantity variances. b)Prepare the necessary journal entries to record the variances computed in (a) above. 5 Refer to the data presented in 4 above. aA) compute the direct labor rate and efficiency variances. b) Prepare the necessary journal entries to record the variances computed in (a) above.

Explanation / Answer

(4)

(a)

Direct material price variance = Actual quantity x (Actual price - Standard price)

= 135,700 x $(0.38 - 0.4) = 135,700 x $0.02 = $2,714 (Favorable)

Direct material quantity variance = Standard price x (Actual quantity - Standard quantity)

= $0.40 x [135,700 - (45,000 x 3)] = $0.4 x (135,700 - 135,000) = $0.4 x 700 = $280 (Unfavorable)

(b)

(i) For price variance:

Actual quantity x Standard price = 135,700 x $0.4 = $54,280

Journal entry is:

DR Direct materials    $54,280

        Direct materials price variance   $2,714

        Accounts payable                     $51,566

(To record direct material price variance, assuming purchases are on account)

(ii) For quantity variance:

DR Work in process                         $54,000

DR Direct material quantity variance $280

         Direct materials                          $54,280

(To record direct material quantity variance)

Note: First question is answered.

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