Steinberg Company had the following direct materials costs for the manufacturing of product T in March:
Actual purchase price per pound of direct materials $ 9.00
Standard direct materials allowed for units of product T produced 3,900 pounds
Decrease in direct materials inventory 280 pounds
Direct materials used in production 4,100 pounds
Standard price per pound of material $ 8.45
Required:
1. What was Steinberg’s direct materials purchase-price variance and its direct materials usage variance for March? Indicate whether each variance was favorable (F) or unfavorable (U).
2. Prepare the appropriate journal entries for March.
In March, the Steinberg Company engaged in the manufacturing of product T, incurring various direct materials costs. To assess the company’s performance in managing these costs, we will analyze the direct materials purchase-price variance and the direct materials usage variance. Additionally, we will outline the relevant journal entries for the month of March.
The direct materials purchase-price variance measures the difference between the actual purchase price per pound of direct materials and the standard price per pound of material, multiplied by the actual quantity purchased. The formula for calculating the purchase-price variance is as follows:
Purchase-Price Variance = (Actual Purchase Price – Standard Price) × Actual Quantity Purchased
Given the information provided:
Actual Purchase Price per Pound = $9.00 Standard Price per Pound = $8.45 Actual Quantity Purchased = 4,100 pounds
Purchase-Price Variance = ($9.00 – $8.45) × 4,100 = $2,835 (Unfavorable)
On the other hand, the direct materials usage variance captures the difference between the standard quantity of materials that should have been used for the actual level of production and the actual quantity used, multiplied by the standard price per pound of material. The formula for calculating the usage variance is as follows:
Usage Variance = (Standard Quantity – Actual Quantity Used) × Standard Price
Given the information provided:
Standard Quantity for Units Produced = 3,900 pounds Actual Quantity Used = 4,100 pounds Standard Price per Pound = $8.45
Usage Variance = (3,900 – 4,100) × $8.45 = -$1,690 (Favorable)
Let’s prepare the relevant journal entries for the direct materials transactions in March:
a. To record the purchase of direct materials:
Date Account Debit Credit
----------------------------------------------------------------
March xx Raw Materials Inventory $36,900 Accounts Payable $36,900
(To record the purchase of 4,100 pounds of direct materials at $9.00 per pound.)
b. To account for the usage of direct materials in production:
Date Account Debit Credit
----------------------------------------------------------------
March xx Work in Process Inventory $34,645 Raw Materials Inventory $34,645
(To record the usage of 4,100 pounds of direct materials at $8.45 per pound in production.)
c. To adjust for the direct materials usage variance:
Date Account Debit Credit
----------------------------------------------------------------
March xx Manufacturing Variance $1,690 Work in Process Inventory $1,690
(To account for the favorable direct materials usage variance.)
d. To recognize the direct materials purchase-price variance:
Date Account Debit Credit
----------------------------------------------------------------
March xx Manufacturing Variance $2,835 Accounts Payable $2,835
(To account for the unfavorable direct materials purchase-price variance.)
In conclusion, the analysis of Steinberg Company’s direct materials costs for product T in March reveals an unfavorable direct materials purchase-price variance of $2,835 and a favorable direct materials usage variance of $1,690.
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