DIRECT LABOR AND DIRECT MATERIALS VARIANCES, JOURNAL ENTRIES Molano Company produces ponchos. The company has established the following direct materials and direct labor standards for one poncho:
|
Wool (3 yds. @ $3) |
$ 9.00 |
|
Labor (3.5 hrs. @ $5) |
17.50 |
|
Total prime cost |
$26.50 |
During the first quarter of the year, Molano produced 25,000 ponchos. The company purchased and used 78,200 yards of wool at $2.90 per yard. Actual direct labor used was 90,000 hours at $5.20 per hour.
Required:
1. Calculate the direct materials price and usage variances.
2. Calculate the direct labor rate and efficiency variances.
3. Prepare the journal entries for the direct materials and direct labor variances.
4. Describe how flexible budgeting variances relate to the direct materials and direct labor variances computed in Requirements 1 and 2.