Question

Information on Bowgie Chemicals direct materials costs follows. Actual quantities of direct materials used Actual costs of direct materials used Standard price per unit of direct materials Flexible budget for direct materials 31,600 $144,200 $ 4.36 $122,900 Bowgie Chemicals has no materials inventories. Required: a. Prepare a short report for management showing Bowgie Chemicals's direct materials price and efficiency variances. b. (Appendix) Prepare the journal entries to record the purchase and use of the direct materials using standard costing. Complete this question by entering your answers in the tabs below.

Answer 1

Value given in the question
Actual quantity of direct materials	31,600
Actual costs of direct materials	$144,200
Standard price per unit of direct materials	$4.36
Flexible budget for direct materials	$122,900
Actual unit price = Actual costs/Actual quantity
= $ 144.200/31,600
= $ 4.56
Direct materials price variance = (Actual unit cost - Standard unit cost) * Actual quantity of direct materials
= ($ 4.56 - $ 4.36) * 31,600
= $ 0.20 * 31,600
= $ 6,424
The variance is unfavorable since actual unit cost is higher than the standard unit cost
Calculation of Flexible budget variance
Flexible budget variance = Actual costs of direct materials - Flexible costs of direct materials
= $ 144,200 - $ 122,900
= $ 21,300
The variance is unfavorable since actual costs are higher than the flexible costs
Flexible budget variance = Price variance + Efficiency variance
Hence,
Direct materials efficiency variance = Flexible budget variance - Direct material price variance
= $ 21,300 - $ 6,424
= $ 14,876
Since, both Flexible budget variance and Price variance are unfavorable,the efficiency
variance is also unfavorable
Answer
Direct materials price variance	$6,424	U
Direct materials efficiency variance	$14,876	U
b.
Computation of standard units of direct materials used
Efficiency Variance = (Actual quantity of direct materials - Standard quantity of direct materials)*Standard Price
=$ 14,876 = (31600 - Standard quantity of direct materials) * $ 4.36
= (31600 - Standard quantity of direct materials) = $ 14,876/ $ 4.36
= (31600 - Standard quantity of direct materials) = $ 3,412
Standard quantity of direct materials = 31,600 - 3,412
= 28,188
Journal entry using standard costing
Standard cost of direct material = Standard quantity * Standard price
= $ 4.36 * 28,188
= $ 122,900
Account Title and Explantion	Debit	Credit
Raw material inventory( 31,600 * 4.36)	$137,776
Direct material price variance (31,600 *0.20)	$6,424
Accounts payable		$144,200
(being the direct materials purchased recorded at standard costs)
Account Title and Explanation	Debit	Credit
Work in progress (31600 * $ 4.36)	$137,776
Direct material efficiency variance		$14,876
Direct material inventory (28164* $ 4.36)		$122,900
(being the direct materials used recorded at standard cost)
Note - Absolute values of actual price per unit have been used in the calculations.
Other derived values have been rounded off to the nearest whole number