Prepare the standard cost journal entries to record direct materials and direct labor variances for Condor Chocolates in May 2035, given standards of $12.00 per lb with 1.33 lbs of materials per lb of chocolate candy and $15.00 per hour with 45 minutes of labor per lb, and actuals of 2,500 lbs of materials purchased and used at $11.15 per lb to produce 2,500 lbs of chocolate candy and labor that actually took 54 minutes per lb at $18.00 per hour.

What you are recording in a standard cost system

Under standard costing, inventory and WIP are recorded at standard cost. Any difference between actual and standard is split into variances (price vs quantity for materials, rate vs efficiency for labor), then those variances are debited (unfavorable) or credited (favorable).

Step 1: Compute standard quantities and standard hours allowed for 2,500 lbs output

Materials standard quantity allowed (SQ): $$SQ = 1.33 \times 2{,}500 = 3{,}325 \text{ lbs}$$

Labor standard hours allowed (SH): $$SH = 0.75 \times 2{,}500 = 1{,}875 \text{ hours}$$

Actual inputs given:

• Materials actual quantity (AQ) used and purchased = $2{,}500$ lbs
• Labor actual hours (AH) = $0.9$ hr/lb $\times 2{,}500 = 2{,}250$ hours

Step 2: Direct materials variances (price and quantity)

Given:

• $SP = \$12.00$ per lb
• $AP = \$11.15$ per lb
• $AQ = 2{,}500$ lbs
• $SQ = 3{,}325$ lbs

Materials price variance (MPV): $$MPV = (AP - SP)\times AQ = (11.15 - 12.00)\times 2{,}500 = -2{,}125$$ So MPV is $\$2{,}125$ favorable (a credit).

Materials quantity variance (MQV): $$MQV = (AQ - SQ)\times SP = (2{,}500 - 3{,}325)\times 12.00 = -9{,}900$$ So MQV is $\$9{,}900$ favorable (a credit).

Journal entries for direct materials (purchase and usage)

Entry 1, record purchase at standard cost (with price variance)

Standard cost of materials purchased: $AQ\times SP = 2{,}500\times 12 = \$30{,}000$

Actual invoice: $AQ\times AP = 2{,}500\times 11.15 = \$27{,}875$

Journal entry:

• Dr Raw Materials Inventory $\$30{,}000$
• Cr Accounts Payable (or Cash) $\$27{,}875$
• Cr Materials Price Variance (F) $\$2{,}125$

Entry 2, issue materials to production at standard (with quantity variance)

Standard cost allowed for output: $SQ\times SP = 3{,}325\times 12 = \$39{,}900$

Materials issued at standard: $AQ\times SP = 2{,}500\times 12 = \$30{,}000$

Journal entry:

• Dr Work in Process $\$39{,}900$
• Cr Raw Materials Inventory $\$30{,}000$
• Cr Materials Quantity Variance (F) $\$9{,}900$

Step 3: Direct labor variances (rate and efficiency)

Given:

• $SR = \$15.00$ per hour
• $AR = \$18.00$ per hour
• $AH = 2{,}250$ hours
• $SH = 1{,}875$ hours

Labor rate variance (LRV): $$LRV = (AR - SR)\times AH = (18 - 15)\times 2{,}250 = \$6{,}750$$ So LRV is $\$6{,}750$ unfavorable (a debit).

Labor efficiency variance (LEV): $$LEV = (AH - SH)\times SR = (2{,}250 - 1{,}875)\times 15 = \$5{,}625$$ So LEV is $\$5{,}625$ unfavorable (a debit).

Journal entry for direct labor

Actual labor cost: $AH\times AR = 2{,}250\times 18 = \$40{,}500$

Standard labor charged to WIP: $SH\times SR = 1{,}875\times 15 = \$28{,}125$

Journal entry:

• Dr Work in Process $\$28{,}125$
• Dr Labor Rate Variance (U) $\$6{,}750$
• Dr Labor Efficiency Variance (U) $\$5{,}625$
• Cr Wages Payable (or Cash) $\$40{,}500$