Tulip Inc. uses standard costing, and its manufacturing standards are as follows: 2 pounds of materials at $13 per pound, and 3 hours of labor at $10 per hour. Budgeted production last period was 5,000 units, and actual production was 4,800 units. Last period, Tulip purchased and used 9,800 pounds of materials for $135,000, and used 15,000 labor hours, costing $145,000. WHat is the journal entry to record direct labor costs to the costs of goods sold account

Dr Work In Progress                     $144,000

Dr Direct Labor Cost Variance    $1,000

Cr Wages Payable                                        $145,000

Explanation:

The first step would be to calculate the direct labor variance which is calculated as under:

Direct Labor Cost Variance = Standard Labor Cost of Actual Production - Actual Labor Cost for Actual Production

Standard Labor Cost of Actual Production = Standard Labor Cost * Actual Production

Here

Actual Production is 4,800 Units and standard labor cost is 3 Hrs at $10 per hour which means:

Standard Labor Cost of Actual Production = 4,800 Units * 3 Hrs * $10 per Hr

= $144,000

Actual Labor Cost for Actual Production is $145,000

By putting the values in the above equation, we have:

Direct Labor Cost Variance = $144,000 - $145,000 = ($1,000) Unfavorable

The double entry would be:

Dr Work In Progress                     $144,000

Dr Direct Labor Cost Variance    $1,000

Cr Wages Payable                                        $145,000

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