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Price and efficiency variances, journal entries.

Drogheda Chemical Ltd has set up the following standards per finished output unit for direct materials and direct manufacturing labour.
•Direct materials: 10 kg at €3.00 per kg €30.00
•Direct manufacturing labour: 0.5 hour at €20.00 per hour €10.00
•The number of finished output units budgeted for March 2008 was 10 000; 9810 units were actually produced.

Actual results in March 2008 were:
• Direct materials: 98 073 kg used
• Direct manufacturing labour: 4900 hours €102 900
• Assume that there were no opening stocks of either direct materials or finished units. During the month, materials purchases amounted to 100 000 kg, at a total cost of €310 000.
•Price variances are isolated upon purchase . Efficiency variances are isolated at the time of usage.

Required
1 Calculate the March 2008 price and efficiency variances of direct materials and direct manufacturing labour. Comment on these variances.

2 Prepare journal entries to record the variances in requirement 1.

3 Why might Drogheda Chemical Ltd calculate materials price variances and materials efficiency variances with reference to different points in time?

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Financial Accounting, Accounting

Category:- Financial Accounting
Reference No.:- M91953040

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