Q13SE - Horngren'S Financial And Managerial Accounting

Question

The following direct labor variance analysis was performed for Morris.

AC × AQ \(19,800 SC × SQ \)14.00 per DLHr × 1,350 DLHr \(18,900 SC × AQ \)14.00 per DLHr × 1,800 DLHr \(11.00 per DLHr × 1,800 DLHr \)25,200 Efficiency Variance Cost Variance \(5,400 F \)6,300 U

Requirements 

1. Record Morris’s direct labor journal entry (use Wages Payable). 

2. Explain what management will do with this variance information.

Step-by-Step Solution

Answer

(1) The journal entry is recorded by debiting work-in-progress by $18,900, direct labor efficiency variance by $6,300 and crediting direct labor cost variance by $5,400 and wages payable by $19,800.

(2) The management should investigate the variances.

Step 1 Journal Entry

Journal Entry
Date	Accounts and Explanation	Debit ($)	Credit ($)
	Work-in-Process Inventory	18,900
	Direct Labor Efficiency variance	6,300
	Direct Labor Cost Variance		5,400
	Wages Payable		19,800
	(Direct Labor costs Incurred)

Step 2 Usage of this variance Information by the Management

The management will now get the information that the variance has occurred but this information is not enough for the management of the company. The management should have knowledge of the reasons behind the occurrence of variances. Each of the variances will be investigated by the management and taking corrective measures to correct them.