Chapter 7 – Selected Problems

7-16 Metal Shelf Company’s standard cost for raw materials is $4.00 per pound and it is
expected that each metal shelf uses two pounds of material. During October Year 2, 25,000 pounds
of materials are purchased from a new supplier for $97,000 and 13,000 shelves are produced using
27,000 pounds of materials. Which statement is a possible explanation concerning the direct
materials variances?
a. The production department had to use more materials since the quality of the materials was
inferior.
b. The purchasing manager paid more than expected for materials.
c. Production workers were more efficient than anticipated.
d. The overall materials variance is positive; no further analysis is necessary.

Solution: a

7-17 All of the following statements regarding standards are accurate except:
a. Standards allow management to budget at a per-unit level.
b. Ideal standards account for a minimal amount of normal spoilage.
c. Participative standards usually take longer to implement than authoritative standards.
d. Currently attainable standards take into account the level of training available to employees.

Solution: b

7-18 Amalgamated Manipulation Manufacturing’s (AMM) standards anticipate that there will
be 3 pounds of raw material used for every unit of finished goods produced. AMM began the
month of May with 5,000 pounds of raw material, purchased 15,000 pounds for $19,500 and ended
the month with 4,000 pounds on hand. The company produced 5,000 units of finished goods. The
company estimates standard costs at $1.50 per pound. The materials price and efficiency variances
for the month of May were:
Price Variance Efficiency Variance
1. $3,000 U $1,500 F
2. $3,000 F $ 0
3. $3,000 F $1,500 U
4. $3,200 F $1,500 U

Solution: 3

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7-19 Atlantic Company has a manufacturing facility in Brooklyn that manufactures robotic
equipment for the auto industry. For Year 1, Atlantic collected the following information from its
main production line:
Actual quantity purchased 200 units
Actual quantity used 110 units
Units standard quantity 100 units
Actual price paid $ 8 per unit
Standard price $ 10 per unit
Atlantic isolates price variances at the time of purchase. What is the materials price variance for
Year 1?
1. $400 favorable.
2. $400 unfavorable.
3. $220 favorable.
4. $220 unfavorable.

Solution: 1

7-20 Basix Inc. calculates direct manufacturing labor variances and has the following
information:
Actual hours worked: 200
Standard hours: 250
Actual rate per hour: $12
Standard rate per hour: $10
Given the information above, which of the following is correct regarding direct manufacturing labor
variances?
a. The price and efficiency variances are favorable.
b. The price and efficiency variances are unfavorable.
c. The price variance is favorable, while the efficiency variance is unfavorable.
d. The price variance is unfavorable, while the efficiency variance is favorable.

Solution: d

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7-21 Flexible budget. Sweeney Enterprises manufactures tires for the Formula I motor racing
circuit. For August 2017, it budgeted to manufacture and sell 3,600 tires at a variable cost of $71
per tire and total fixed costs of $55,000. The budgeted selling price was $114 per tire. Actual
results in August 2017 were 3,500 tires manufactured and sold at a selling price of $116 per tire.
The actual total variable costs were $280,000, and the actual total fixed costs were $51,000.

Required:
1. Prepare a performance report (akin to Exhibit 7-2, page 254) that uses a flexible budget and a
static budget.
2. Comment on the results in requirement 1.

SOLUTION

(20–30 min.) Flexible budget.

Variance Analysis for Sweeney Enterprises for August 2017

Flexible-
Actual Budget Flexible Sales-Volume Static
Results Variances Budget Variances Budget
(1) (2) = (1) – (3) (3) (4) = (3) – (5) (5)
Units (tires) sold 3,500g 0 3,500 100 U 3,600g
Revenues $406,000a $ 7,000 F $399,000b $11,400 U $410,400c
Variable costs 280,000d 31,500 U 248,500e 7,100 F 255,600f
Contribution margin 126,000 24,500 U 150,500 4,300 U 154,800
Fixed costs 51,000g 4,000 F 55,000g 0 55,000g
Operating income $ 75,000 $20,500 U $ 95,500 $ 4,300 U $ 99,800

$20,500 U $ 4,300 U
Total flexible-budget variance Total sales-volume variance
$24,800 U
Total static-budget variance
a
$116 × 3,500 = $406,000
b
$114 × 3,500 = $399,000
c
$114 × 3,600 = $410,400
d
Given. Unit variable cost = $280,000 ÷ 3,500 = $80 per tire
e
$71 × 3,500 = $248,500
f
$71 × 3,600 = $255,600
g
Given

2. The key information items are:

Actual Budgeted
Units 3,500 3,600
Unit selling price $ 116 $ 114
Unit variable cost $ 80 $ 71
Fixed costs $51,000 $55,000

The total static-budget variance in operating income is $24,800 U. There is both an unfavorable

3
total flexible-budget variance ($20,500) and an unfavorable sales-volume variance ($4,300).
The unfavorable sales-volume variance arises solely because actual units manufactured and
sold were 100 less than the budgeted 3,600 units. The unfavorable flexible-budget variance of
$20,500 in operating income is due primarily to the $9 increase in unit variable costs. This increase
in unit variable costs is only partially offset by the $2 increase in unit selling price and the $4,000
decrease in fixed costs.

7-22 Flexible budget. Bryant Company’s budgeted prices for direct materials, direct
manufacturing labor, and direct marketing (distribution) labor per attaché case are $43, $6, and
$13, respectively. The president is pleased with the following performance report:

Actual Costs Static Budget Variance

Direct materials $438,000 $473,000 $35,000 F

Direct manufacturing labor 63,600 66,000 2,400 F
Direct marketing (distribution) 133,500 143,000 9,500 F
labor

Required:
Actual output was 10,000 attaché cases. Assume all three direct-cost items shown are variable
costs.
Is the president’s pleasure justified? Prepare a revised performance report that uses a flexible
budget and a static budget.

SOLUTION

(15 min.) Flexible budget.

The existing performance report is a Level 1 analysis, based on a static budget. It makes no
adjustment for changes in output levels. The budgeted output level is 11,000 units––direct
materials of $473,000 in the static budget ÷ budgeted direct materials cost per attaché case of $43.
The following is a Level 2 analysis that presents a flexible-budget variance and a sales-
volume variance of each direct cost category.

4
 Variance Analysis for Bryant Company

Flexible- Sales-
Actual Budget Flexible Volume Static
Results Variances Budget Variances Budget
(1) (2) = (1) – (3) (3) (4) = (3) – (5) (5)
Output units 10,000 0 10,000 1,000 U 11,000
Direct materials $438,000 $ 8,000 U $430,000 $43,000 F $473,000
Direct manufacturing labor 63,600 3,600 U 60,000 6,000 F 66,000
Direct marketing labor 133,500 3,500 U 130,000 13,000 F 143,000
Total direct costs $635,100 $15,100 U $620,000 $62,000 F $682,000

$15,100 U $62,000 F
Flexible-budget variance Sales-volume variance
$46,900 F
Static-budget variance

The Level 1 analysis shows total direct costs have a $46,900 favorable variance. However,
the Level 2 analysis reveals that this favorable variance is due to the reduction in output of 1,000
units from the budgeted 11,000 units. Once this reduction in output is taken into account (via a
flexible budget), the flexible-budget variance shows each direct cost category to have an
unfavorable variance indicating less efficient use of each direct cost item than was budgeted, or
the use of more costly direct cost items than was budgeted, or both.
Each direct cost category has an actual unit variable cost that exceeds its budgeted unit
cost:
Actual Budgeted
Units 10,000 11,000
Direct materials $ 43.80 $ 43.00
Direct manufacturing labor $ 6.36 $ 6.00
Direct marketing labor $ 13.35 $ 13.00

Analysis of price and efficiency variances for each cost category could assist in further the
identifying causes of these more aggregated (Level 2) variances.

7-23 Flexible-budget preparation and analysis. Bank Management Printers, Inc., produces
luxury checkbooks with three checks and stubs per page. Each checkbook is designed for an
individual customer and is ordered through the customer’s bank. The company’s operating budget for
September 2017 included these data:

Number of checkbooks 15,000

Selling price per book $ 20
Variable cost per book $ 8
Fixed costs for the month $145,000

5
The actual results for September 2017 were as follows:

Number of checkbooks produced and sold 12,000

Average selling price per book $ 21

Variable cost per book $ 7

Fixed costs for the month $150,000

The executive vice president of the company observed that the operating income for September
was much lower than anticipated, despite a higher-than-budgeted selling price and a lower-than-
budgeted variable cost per unit. As the company’s management accountant, you have been asked
to provide explanations for the disappointing September results.
Bank Management develops its flexible budget on the basis of budgeted per-output-unit
revenue and per-output-unit variable costs without detailed analysis of budgeted inputs.

Required:
1. Prepare a static-budget-based variance analysis of the September performance.
2. Prepare a flexible-budget-based variance analysis of the September performance.
3. Why might Bank Management find the flexible-budget-based variance analysis more
informative than the static-budget-based variance analysis? Explain your answer.

SOLUTION

(25–30 min.) Flexible-budget preparation and analysis.

1. Variance Analysis for Bank Management Printers for September 2017

Level 1 Analysis
Actual Static-Budget Static
Results Variances Budget
(1) (2) = (1) – (3) (3)
Units sold 12,000 3,000 U 15,000
Revenue $252,000a $ 48,000 U $300,000c
Variable costs 84,000d 36,000 F 120,000f
Contribution margin 168,000 12,000 U 180,000
Fixed costs 150,000 5,000 U 145,000
Operating income $ 18,000 $ 17,000 U $ 35,000

$17,000 U

6
 Total static-budget variance
2. Level 2 Analysis

Flexible- Sales
Actual Budget Flexible Volume Static
Results Variances Budget Variances Budget
(1) (2) = (1) – (3) (3) (4) = (3) – (5) (5)
Units sold 12,000 0 12,000 3,000 U 15,000
Revenue $252,000a $12,000 F $240,000b $60,000 U $300,000c
Variable costs 84,000d 12,000 F 96,000e 24,000 F 120,000f
Contribution margin 168,000 24,000 F 144,000 36,000 U 180,000
Fixed costs 150,000 5,000 U 145,000 0 145,000
Operating income $ 18,000 $19,000 F $ (1,000) $36,000 U $ 35,000
$19,000 F $36,000 U
Total flexible-budget Total sales-volume
variance variance
$17,000 U
Total static-budget variance
a d
12,000 × $21 = $252,000 12,000 × $7 = $ 84,000
b e
12,000 × $20 = $240,000 12,000 × $8 = $ 96,000
c f
15,000 × $20 = $300,000 15,000 × $8 = $120,000

3. Level 2 analysis breaks down the static-budget variance into a flexible-budget variance and
a sales-volume variance. The primary reason for the static-budget variance being unfavorable
($17,000 U) is the reduction in unit volume from the budgeted 15,000 to an actual 12,000. One
explanation for this reduction is the increase in selling price from a budgeted $20 to an actual $21.
Operating management was able to reduce variable costs by $12,000 relative to the flexible budget.
This reduction could be a sign of efficient management. Alternatively, it could be due to using
lower quality materials (which in turn adversely affected unit volume).

7
7-25 Flexible-budget and sales volume variances. Cascade, Inc., produces the basic fillings
used in many popular frozen desserts and treats—vanilla and chocolate ice creams, puddings,
meringues, and fudge. Cascade uses standard costing and carries over no inventory from one month
to the next. The ice-cream product group’s results for June 2017 were as follows:

Jeff Geller, the business manager for ice-cream products, is pleased that more pounds of ice cream
were sold than budgeted and that revenues were up. Unfortunately, variable manufacturing costs went
up, too. The bottom line is that contribution margin declined by $52,900, which is just over 2% of the
budgeted revenues of $2,592,600. Overall, Geller feels that the business is running fine.

Required:
1. Calculate the static-budget variance in units, revenues, variable manufacturing costs, and
contribution margin. What percentage is each static-budget variance relative to its static-
budget amount?
2. Break down each static-budget variance into a flexible-budget variance and a sales-volume
variance.
3. Calculate the selling-price variance.
4. Assume the role of management accountant at Cascade. How would you present the results to
Jeff Geller? Should he be more concerned? If so, why?

8
 Performance Report for Cascade, Inc., June 2017

Static Budget
Flexible Static Variance as
Budget Flexible Sales Volume Static Budget % of Static
Actual Variances Budget Variances Budget Variance Budget
(1) (2) = (1) – (3) (3) (4) = (3) – (5) (5) (6) = (1) – (5) (7) = (6) ÷ (5)
Units (pounds) 460,000 - 460,000 13,000 F 447,000 13,000 F 2.91%
Revenues $2,626,600 $ 41,400 U $2,668,000a $75,400 F $2,592,600 $34,000 F 1.31%
Variable mfg. costs 1,651,400 41,400 U 1,610,000b 45,500 U 1,564,500 86,900 U 5.55%
Contribution margin $975,200 $ 82,800 U $1,058,000 $ 29,900 F $1,028,100 $52,900 U 5.15%

$82,800 U $ 29,900 F
Flexible-budget variance Sales-volume variance

$52,900 U
Static-budget variance
a
Budgeted selling price = $2,592,600 ÷ 447,000 lbs = $5.80 per lb.
Flexible-budget revenues = $5.80 per lb. × 460,000 lbs. = $2,668,000
b
Budgeted variable mfg. cost per unit = $1,564,500 ÷ 447,000 lbs. = $3.50
Flexible-budget variable mfg. costs = $3.50 per lb. × 460,000 lbs. = $1,610,000

9
3. The selling price variance, caused solely by the difference in actual and budgeted selling
price, is the flexible-budget variance in revenues = $41,400 U.

4. The flexible-budget variances show that for the actual sales volume of 460,000 pounds,
selling prices were lower and costs per pound were higher. The favorable sales volume variance
in revenues (because more pounds of ice cream were sold than budgeted) helped offset the
unfavorable variable cost variance and shored up the results in June 2017. Geller should be more
concerned because the static-budget variance in contribution margin of $52,900 U is actually
made up of a favorable sales-volume variance in contribution margin of $29,900, an unfavorable
selling-price variance of $41,400 and an unfavorable variable manufacturing costs variance of
$41,400. Adler should analyze why each of these variances occurred and the relationships among
them. Could the efficiency of variable manufacturing costs be improved? The sales volume
appears to have increased due to the lower average selling price per pound.

10
7-26 Price and efficiency variances. Sunshine Foods manufactures pumpkin scones. For
January 2017, it budgeted to purchase and use 14,750 pounds of pumpkin at $0.92 a pound.
Actual purchases and usage for January 2017 were 16,000 pounds at $0.85 a pound. Sunshine
budgeted for 59,000 pumpkin scones. Actual output was 59,200 pumpkin scones.

Required:
1. Compute the flexible-budget variance.
2. Compute the price and efficiency variances.
3. Comment on the results for requirements 1 and 2 and provide a possible explanation for them.

SOLUTION

(20–30 min.) Price and efficiency variances.

1. The key information items are:

Actual Budgeted
Output units (scones) 59,200 59,000
Input units (pounds of pumpkin) 16,000 14,750
Cost per input unit $ 0.85 $ 0.92

Sunshine budgets to obtain 3 pumpkin scones from each pound of pumpkin.

The flexible-budget variance is $16 F.

Flexible-
Actual Budget Flexible Sales-Volume Static
Results Variance Budget Variance Budget
(1) (2) = (1) – (3) (3) (4) = (3) – (5) (5)
Pumpkin costs $13,600a $16 F $13,616b $46 U $13,570c
a
16,000 × $0.85 = $13,600
b
59,200 × 0.25 × $0.92 = $13,616
c
59,000 × 0.25 × $0.92 = $13,570

2. Flexible Budget
Actual Costs (Budgeted Input
Incurred Qty. Allowed for
(Actual Input Qty. Actual Input Qty. Actual Output
× Actual Price) × Budgeted Price × Budgeted Price)
$13,600a $14,720b $13,616c

$1,120 F $1,104 U
Price variance Efficiency variance
$16 F
Flexible-budget variance
a
16,000 × $0.85 = $13,600

11
b
16,000 × $0.92 = $14,720
c
59,200 × 0.25 × $0.92 = $13,616

3. The favorable flexible-budget variance of $16 has two offsetting components:

(a) favorable price variance of $1,120––reflects the $0.85 actual purchase cost being
lower than the $0.92 budgeted purchase cost per pound.
(b) unfavorable efficiency variance of $1,104––reflects the actual materials yield of 3.80
scones per pound of pumpkin (59,200 ÷ 16,000 = 3.70) being less than the budgeted
yield of 4.00 (59,000 ÷ 14,750 = 4.00). The company used more pumpkins (materials)
to make the scones than was budgeted.

One explanation may be that Sunshine purchased lower quality pumpkins at a lower cost per
pound.

7-29 Price and efficiency variances, journal entries. The Schuyler Corporation manufactures
lamps. It has set up the following standards per finished unit for direct materials and direct
manufacturing labor:

Direct materials: 10 lb. at $4.50 per lb. $45.00

Direct manufacturing labor: 0.5 hour at $30 per hour 15.00

The number of finished units budgeted for January 2017 was 10,000; 9,850 units were actually
produced.
Actual results in January 2017 were as follows:

Direct materials: 98,055 lb. used

Direct manufacturing labor: 4,900 hours $154,350

Assume that there was no beginning inventory of either direct materials or finished units.
During the month, materials purchased amounted to 100,000 lb., at a total cost of $465,000.
Input price variances are isolated upon purchase. Input-efficiency variances are isolated at the time
of usage.

Required:
1. Compute the January 2017 price and efficiency variances of direct materials and direct
manufacturing labor.
2. Prepare journal entries to record the variances in requirement 1.
3. Comment on the January 2017 price and efficiency variances of Schuyler Corporation.
4. Why might Schuyler calculate direct materials price variances and direct materials efficiency
variances with reference to different points in time?

12
SOLUTION

(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

13
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.

7-30 Materials and manufacturing labor variances, standard costs. Dawson, Inc., is a
privately held furniture manufacturer. For August 2017, Dawson had the following standards for one
of its products, a wicker chair:

Standards per Chair

Direct materials 3 square yards of input at $5.50 per square

yard
Direct manufacturing labor 0.5 hour of input at $10.50 per hour

The following data were compiled regarding actual performance: actual output units (chairs)
produced, 2,200; square yards of input purchased and used, 6,200; price per square yard, $5.70; direct
manufacturing labor costs, $9,844; actual hours of input, 920; labor price per hour, $10.70.

1. Show computations of price and efficiency variances for direct materials and direct
manufacturing labor. Give a plausible explanation of why each variance occurred.
2. Suppose 8,700 square yards of materials were purchased (at $5.70 per square yard), even
though only 6,200 square yards were used. Suppose further that variances are identified at their
most timely control point; accordingly, direct materials price variances are isolated and traced
at the time of purchase to the purchasing department rather than to the production department.
Compute the price and efficiency variances under this approach.

14
SOLUTION

(20-30 min.) Materials and manufacturing labor variances, standard costs.

1. Direct Materials
Flexible Budget
Actual Costs (Budgeted Input
Incurred Qty. Allowed for
(Actual Input Qty. Actual Input Qty. Actual Output
× Actual Price) × Budgeted Price × Budgeted Price)
(2,200 × 3 × $5.50)
(6,200 sq. yds. × $5.70) (6,200 sq. yds. × $5.50) (6,600 sq. yds. × $5.50)
$35,340 $34,100 $36,300

$1,240 U $2,200 F
Price variance Efficiency variance
$960 F
Flexible-budget variance

The unfavorable materials price variance may be unrelated to the favorable materials efficiency
variance. For example, (a) the purchasing officer may be less skillful than assumed in the budget,
or (b) there was an unexpected increase in materials price per square yard due to reduced
competition. Similarly, the favorable materials efficiency variance may be unrelated to the
unfavorable materials price variance. For example, (a) the production manager may have been
able to employ higher-skilled workers, or (b) the budgeted materials standards were set too
loosely. It is also possible that the two variances are interrelated. The higher materials input price
may be due to higher quality materials being purchased. Less material was used than budgeted
due to the high quality of the materials.

Direct Manufacturing Labor

Flexible Budget
Actual Costs (Budgeted Input
Incurred Qty. Allowed for
(Actual Input Qty. Actual Input Qty. Actual Output
× Actual Price) × Budgeted Price × Budgeted Price)
(2,200 × 0.5 × $10.50)
(920 hrs. × $10.70) (920 hrs. × $10.50) (1,100 hrs. × $10.50)
$9,844 $9,660 $11,550

$184 U $1,890 F
Price variance Efficiency variance
$1,706 F
Flexible-budget variance

The unfavorable labor price variance may be due to, say, (a) an increase in labor rates due
to a booming economy, or (b) the standard being set without detailed analysis of labor
compensation. The favorable labor efficiency variance may be due to, say, (a) more efficient

15
workers being employed, (b) a redesign in the plant enabling labor to be more productive, or (c)
the use of higher quality materials.

2.
Flexible Budget
(Budgeted Input
Actual Costs Qty. Allowed for
Incurred Actual Output
Control (Actual Input Qty. Actual Input Qty. × Budgeted
Point × Actual Price) × Budgeted Price Price)
Purchasing (8,700 sq. yds.× $5.70) (8,700 sq. yds. × $5.50)
$49,590 $47,850

$1,740 U
Price variance

Production (6,200 sq. yds.× $5.50) (2,200 × 3 × $5.50)

$34,100 $36,300

$2,200 F
Efficiency variance

Direct manufacturing labor variances are the same as in requirement 1.

7-31 Journal entries and T-accounts (continuation of 7-30). Prepare journal entries and post them
to T-accounts for all transactions in Exercise 7-30, including requirement 2. Summarize how these
journal entries differ from the normal-costing entries described in Chapter 4, pages 120–123.

SOLUTION

(20-25 min.) Journal entries and T-accounts (continuation of 7-30).

For requirement 1 from Exercise 7-30:

a. Direct Materials Control 34,100
Direct Materials Price Variance 1,240
Accounts Payable Control 35,340
To record purchase of direct materials.

b. Work-in-Process Control 36,300

Direct Materials Efficiency Variance 2,200
Direct Materials Control 34,100
To record direct materials used.

c. Work-in-Process Control 11,550

Direct Manufacturing Labor Price Variance 184
Direct Manufacturing Labor Efficiency Variance 1,890
Wages Payable Control 9,844

16
 To record liability for and allocation of direct labor costs.

Direct Direct Materials Direct Materials

Materials Control Price Variance Efficiency Variance
(a) 34,100 (b) 34,100 (a) 1,240 (b) 2,200

Direct Manufacturing Direct Manuf. Labor

Work-in-Process Control Labor Price Variance Efficiency Variance
(b) 36,300 (a) 184 (c) 1,890
(c) 11,550

Wages Payable Control Accounts Payable Control

(c) 9,844 (a) 35,340

For requirement 2 from Exercise 7-30:

The following journal entries pertain to the measurement of price and efficiency variances when
8,700 sq. yds. of direct materials are purchased:

a1. Direct Materials Control 47,850

Direct Materials Price Variance 1,740
Accounts Payable Control 49,590
To record direct materials purchased.

a2. Work-in-Process Control 36,300

Direct Materials Control 34,100
Direct Materials Efficiency Variance 2,200
To record direct materials used.

Direct Direct Materials

Materials Control Price Variance
(a1) 47,850 (a2) 34,100 (a1) 1,740

Accounts Payable Control Work-in-Process Control

(a1) 49,590 (a2) 36,300

Direct Materials
Efficiency Variance
(a2) 2,200

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The T-account entries related to direct manufacturing labor are the same as in requirement 1. The
difference between standard costing and normal costing for direct cost items is:

Standard Costs Normal Costs

Direct Costs Standard price(s) Actual price(s)
× Standard input × Actual input
allowed for actual
outputs achieved

These journal entries differ from the normal costing entries because Work-in-Process Control is
no longer carried at “actual” costs. Furthermore, Direct Materials Control is carried at standard
unit prices rather than actual unit prices. Finally, variances appear for direct materials and direct
manufacturing labor under standard costing but not under normal costing.

18