Exercise 12B-2

1) For direct materials: Compute the direct materials price and quantity variances

Actual Quantity
x
Actual
Price________

Actual Quantity
x
Standard
Price_______

10,000 x 13.8 =
$138000

10,000 x 14 =
$140000
8000 x 14 =
$112000

Standard Quantity
x
Standard Price____

3000 x 2.5 x 14 =
$105000

Price variance $2000

favourable
Quantity variance $7000
unfavourable

Exercise 12B-2

1) For direct materials: Prepare Journal entries to record the purchase of materials and the use of
materials in production.
To record the purchase of materials
Debit
Raw Materials

Credit

140,000

Direct Materials Price

Variance

2000

Account Payable

138000

To record use of materials

Debit
Work In progress

105000

Direct Materials
Quantity Variance

7000

Raw Material

Credit

112000

Exercise 12B-2

2) For direct labour: Compute the direct labour rate and efficiency variances

Actual Hours
x
Actual
Rate________

Actual Hours
x
Standard
Rate_______

$43000

5000 x 8 =
$40,000

Standard Hours
x
Standard Rate____

3000 x 1.6 x 8 =
$38,400

Rate Variance $3000

unfavourable
Efficiency variance $1600
unfavourable

Exercise 12B-2

2) For direct labour: Prepare a journal entry to record the incurrence of direct labour cost for the
month

To record the incurrence of direct labour cost

Debit
Work In Process

38,400

Direct labour rate

variance

3,000

Direct labour
efficiency variance

1,600

Wages Payable

Credit

43,000

Exercise 12B-2

3) Post the entries you have prepared to the following T-accounts

Raw materials
140,000

112,000

Balance:
28,000
Account Payable

Work in Process
105,000
38,400
Wages Payable

138,000

Material Price Variance

2,000

Labour Rate Variance

3,000

43,000

Material Quantity Variance

7,000

Labour Efficiency Variance

1,600