Question -
P&G Company produces many products for household use. Company sells products to storekeepers as well as to customers. Detergent-DX is one of the products of P&G. It is a cleaning product that is produced, packed in large boxes and then sold to customers and storekeepers.
P&G uses a traditional standard costing system to control costs and has established the following materials, labor and overhead standards to produce one box of Detergent-DX:
Direct materials: 1.5 pounds @ $12 per pound - $18.00
Direct labor: 0.6 hours $24 per hour - $14.40
Variable manufacturing overhead: 0.6 hours @ $5.00 - $3.00
$35.40
During August 2012, company produced and sold 3,800 boxes of Detergent-DX. 8,500 pounds of direct materials were purchased @ $12.50 per pound. Out of these 8,500 pounds, 6,000 pounds were used during August. There was no inventory at the beginning of August. 1600 direct labor hours were recorded during the month at a cost of $30,000. The variable manufacturing overhead costs during August totaled $8,200.
Required:
1. Compute materials price variance and materials quantity variance. (Assume that the materials price variance is computed at the time of purchase.)
2. Compute direct labor rate variance and direct labor efficiency variance.
3. Prepare journal entries to record materials and labor variances.