Instructions The Assembly Department produced 5,000 units of product during Marc

Question

Instructions The Assembly Department produced 5,000 units of product during March. Each unit required 2.8 standard direct labor hours. There were 14,600 actual hours used in the Assembly Department during March at an actual rate of $18.4 per hour. The standard direct labor rate is $19.2 per hour. Assuming direct labor for a month is paid on the fifth day of the following month. Required: Journalize the direct labor in the Assembly Department on March 31. Refer to the Chart of Accounts for exact wording of account titles.

Explanation / Answer

1) Calculation of Standard Labour Cost

Standard Labour Cost = Standard direct labour hrs * Standard Rate

In this question standard direct labour hour for 1 unit is 2.8 hrs, so total std direct labour hrs= 5000*2.8 =14000 hrs

So, Standard Cost = 14000 hrs* 19.2

= 268800

2) Calculation of Actual Labour Cost

Actual labour Cost = Actual Lab Hrs * Actual Rate

= 14600*18.4

= 268640

So we have to pay $ 160 less (268800-268640) as compared to standard cost, so it,s a favourable variance

Now, favourable variance of $ 160 is due to two reason - Direct Labour Time Variance & Direct Labour Rate Variance

i) Direct Labour Time Variance means variance due to difference in Labour Hrs

so, Direct Labour Time Variance = (Std Labour hrs - Actual Lab Hrs) * Std Rate

= (14000-14600)*19.2

= ($11520)

ii) Direct Labour Rate Variance means variance due to difference in labour rate per hrs

so, Direct Labour Rate Variance = (Std Rate- Actual rate) * Actual Labour hrs

= (19.2-18.4) * 14600

= $11680

So, we can observe that Direct Labour Time Variance + Direct Labour Rate Variance = (11520)+11680

= $160 favourable Variance

Journal Entry for Direct Labour Expense as on 31st March is as follows:

Particulars Debit Credit Wages Expense (Std Hr*Std Rate) 268800 Direct Labour Time Variance(Adverse) 11520 Direct Labour Rate Variance(Favourable) 11680 Wages Payable(Actual Hrs*Actual rate) 268640 280320 280320

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