Question:
Price and efficiency variances, journal entries. The Monroe Corporation manufactures lamps. It has set up the following standards per finished unit for direct materials and direct manufacturing labor:
Direct materials: 10 lbs. at $4.50 per lb. $45.00
Direct manufacturing labor: 0.5 hour at $30 per hour 15.00
The number of finished units budgeted for January 2009 was 10,000; 9,850 units were actually produced. Actual results in January 2009 were:
Direct materials: 98,055 lbs. used
Direct manufacturing labor: 4,900 hours $154,350
Assume that there was no beginning inventory of either direct materials or finished units.
During the month, materials purchases amounted to 100,000 lbs., at a total cost of $465,000. Input price variances are isolated upon purchase. Input-efficiency variances are isolated at the time of usage.
1. Compute the January 2009 price and efficiency variances of direct materials and direct manufacturing labor.
2. Prepare journal entries to record the variances in requirement 1.
3. Comment on the January 2009 price and efficiency variances of Monroe Corporation.
4. Why might Monroe calculate direct materials price variances and direct materials efficiency variances with reference to different points in time?