7-24 (30 min.) Price and efficiency variances, journal entries.

1. Direct materials and direct manufacturing labor are analyzed in turn:

Flexible Budget
Actual Costs (Budgeted Input
Incurred Qty. Allowed for
(Actual Input Qty. Actual Input Qty. Actual Output
Actual Price) Budgeted Price Budgeted Price)
Purchases Usage

Direct (100,000 $4.65a) (100,000 $4.50) (98,055 $4.50) (9,850 10 $4.50)

Materials $465,000 $450,000 $441,248 $443,250

$15,000 U $2,002 F
Price variance Efficiency variance

Direct (9,850 0.5 $30) or

Manufacturing (4,900 $31.5b) (4,900 $30) (4,925 $30)
Labor $154,350 $147,000 $147,750

$7,350 U $750 F
Price variance Efficiency variance
a
$465,000 100,000 = $4.65
b
$154,350 4,900 = $31.5

2. Direct Materials Control 450,000

Direct Materials Price Variance 15,000
Accounts Payable or Cash Control 465,000

Work-in-Process Control 443,250

Direct Materials Control 441,248
Direct Materials Efficiency Variance 2,002

Work-in-Process Control 147,750

Direct Manuf. Labor Price Variance 7,350
Wages Payable Control 154,350
Direct Manuf. Labor Efficiency Variance 750

3. Some students comments will be immersed in conjecture about higher prices for materials,
better quality materials, higher-grade labor, better efficiency in use of materials, and so forth. A
possibility is that approximately the same labor force, paid somewhat more, is taking slightly less
time with better materials and causing less waste and spoilage.
A key point in this problem is that all of these efficiency variances are likely to be
insignificant. They are so small as to be nearly meaningless. Fluctuations about standards are
bound to occur in a random fashion. Practically, from a control viewpoint, a standard is a band or
range of acceptable performance rather than a single-figure measure.

4. The purchasing point is where responsibility for price variances is found most often. The
production point is where responsibility for efficiency variances is found most often. The Schuyler
Corporation may calculate variances at different points in time to tie in with these different
responsibility areas.