Asked by Patricia Christian on May 06, 2024
Verified
Decena Corporation manufactures one product. It does not maintain any beginning or ending Work in Process inventories. The company uses a standard cost system in which inventories are recorded at their standard costs. Information concerning the direct labor standards for the company's only product is as follows: During the year, the company assigned direct labor costs to work in process. The direct labor workers (who were paid in cash) worked 15,830 hours at an average cost of $18.50 per hour. The company calculated the following direct labor variances for the year:
Assume that all transactions are recorded on the below worksheet, which is similar to the worksheet shown in your text except that it has been divided into two parts so that it fits on one page. The beginning balances in each of the accounts have been given. PP&E (net) stands for Property, Plant, and Equipment net of depreciation.
When recording the direct labor costs, the Work in Process inventory account will increase (decrease) by:
A) ($292,855)
B) $286,740
C) $292,855
D) ($286,740)
Direct Labor Variances
The difference between the expected (standard) cost of direct labor for actual production and the actual cost incurred.
Direct Labor
Direct labor involves the work of employees who are directly involved in producing goods or services, being a key factor in manufacturing costs.
- Delve into the process of logging transactions in standard cost systems, specifically those that do not calculate variable manufacturing overhead.
- Observe the variations between direct materials, direct labor, and manufacturing overhead.
- Understand how to apply fixed and variable costs to the work in process inventory.
Verified Answer
SN
Siti Nur Syatira Azwa Binti AmmeranMay 13, 2024
Final Answer :
B
Explanation :
Based on the direct labor hours worked and the standard labor rate per hour, the standard direct labor cost is calculated as follows:
Standard direct labor cost per unit = (3/4 hour x $15.50) + (1/4 hour x $20.50) = $16.75 per unit
Total standard direct labor cost = 23,400 units x $16.75 per unit = $392,100
The actual direct labor cost for the year was $293,875 ($18.50 per hour x 15,830 hours). The difference between actual and standard direct labor cost is a favorable variance of $98,225:
Favorable direct labor cost variance = Standard direct labor cost - Actual direct labor cost
= $392,100 - $293,875
= $98,225
This favorable variance means that the company paid less for direct labor than it expected to pay based on the standard rate per hour. When recording the direct labor costs, the Work in Process inventory account will increase by the actual cost of direct labor assigned, which is $293,875. However, since the direct labor cost variance is favorable, the company will also record a credit to the Direct Labor Efficiency Variance account. Therefore, the total increase in Work in Process inventory account will be:
Increase in Work in Process inventory account = Actual direct labor cost assigned - Direct Labor Efficiency Variance
= $293,875 - $7,135
= $286,740
Therefore, the best choice is B.
Standard direct labor cost per unit = (3/4 hour x $15.50) + (1/4 hour x $20.50) = $16.75 per unit
Total standard direct labor cost = 23,400 units x $16.75 per unit = $392,100
The actual direct labor cost for the year was $293,875 ($18.50 per hour x 15,830 hours). The difference between actual and standard direct labor cost is a favorable variance of $98,225:
Favorable direct labor cost variance = Standard direct labor cost - Actual direct labor cost
= $392,100 - $293,875
= $98,225
This favorable variance means that the company paid less for direct labor than it expected to pay based on the standard rate per hour. When recording the direct labor costs, the Work in Process inventory account will increase by the actual cost of direct labor assigned, which is $293,875. However, since the direct labor cost variance is favorable, the company will also record a credit to the Direct Labor Efficiency Variance account. Therefore, the total increase in Work in Process inventory account will be:
Increase in Work in Process inventory account = Actual direct labor cost assigned - Direct Labor Efficiency Variance
= $293,875 - $7,135
= $286,740
Therefore, the best choice is B.
Learning Objectives
- Delve into the process of logging transactions in standard cost systems, specifically those that do not calculate variable manufacturing overhead.
- Observe the variations between direct materials, direct labor, and manufacturing overhead.
- Understand how to apply fixed and variable costs to the work in process inventory.