Obenshain Corporation manufactures one product. The company uses a standard cost system in which inventories are recorded at their standard costs. The standard cost card for the company's only product is as follows:?InputsStandard Quantity or HoursStandard Price or RateStandard Cost?Direct materials2.7liters$9.00per liter$24.30?Direct labor0.80hours$21.00per hour16.80?Fixed manufacturing overhead0.80hours$16.00per hour12.80?Total standard cost per unit????$53.90During the year, direct labor workers (who were paid in cash) worked 12,880 hours at an average cost of $20.00 per hour on 17,600 units. These units were started and completed during the year.Required:Completely record the direct labor costs, along with any direct labor variances, in the below worksheet. Because
of the width of the worksheet, it is in two parts. In your text, these two parts would be joined side-by-side to make one very wide worksheet. The beginning balances have been provided for each of the accounts, including the Property, Plant, and Equipment (net) account which is abbreviated as PP&E (net).??CashRaw MaterialsWork in ProcessFinished GoodsPP&E (net)=?1/1$1,010,000 $34,020 $0 $48,510 $721,000 =???????=???????=??Materials Price VarianceMaterials Quantity VarianceLabor Rate VarianceLabor Efficiency VarianceFOH Budget VarianceFOH Volume VarianceRetained Earnings?1/1$0$0$0$0$0$0$1,813,530 ??????????????????
What will be an ideal response?
Labor rate variance = AH × (AR ? SR)
= 12,880 hours × ($20.00 per hour ? $21.00 per hour)
= 12,880 hours × (-$1.00 per hour)
= $12,880 F
Labor efficiency variance:
SH = Actual output × Standard quantity = 17,600 units × 0.80 hours per unit = 14,080 hours
Labor efficiency variance = (AH ? SH) × SR
= (12,880 hours ? 14,080 hours) × $21.00 per hour
= (-1,200 hours) × $21.00 per hour
= $25,200 F
| ? | ? | Cash | Raw Materials | Work in Process | Finished Goods | PP&E (net) | = |
| ? | 1/1 | $1,010,000 | $34,020 | $0 | $48,510 | $721,000 | = |
| ? | ? | (257,600) | ? | 295,680 | ? | ? | = |
| ? | ? | Materials Price Variance | Materials Quantity Variance | Labor Rate Variance | Labor Efficiency Variance | FOH Budget Variance | FOH Volume Variance | Retained Earnings |
| ? | 1/1 | ? | ? | ? | ? | ? | ? | $1,813,530 |
| ? | ? | ? | ? | 12,880 | 25,200 | ? | ? | ? |
Cash decreases by the actual amount paid to direct laborers, which is AH × AR = 12,880 hours × $20.00 per hour = $257,600. Work in Process increases by the standard cost of the standard amount of hours allowed for the actual output, which is SH × SR = (17,600 units × 0.80 hours per unit) × $21.00 per hour = 14,080 hours × $21.00 per hour = $295,680. The difference consists of the Labor Rate Variance which is $12,880 F and the Labor Efficiency Variance which is $25,200 F.
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