When a journal entry is made in a standard cost system to record the liability for direct manufacturing labour costs, the difference between the debit to the work-in-process control account and the credit to the payroll payables is
A) only the efficiency variance.
B) only the rate variance.
C) the difference between the actual wage rate and the budgeted rate, times the actual hours.
D) the difference between the actual wage rate and the budgeted rate, times the budget hours.
E) the total of the price and efficiency labour variances.

Question

Quizplus · Accepted Answer

The difference between the debit to the work-in-process control account and the credit to the payroll payables in a standard cost system when recording the liability for direct manufacturing labor costs represents the total of the price (rate) and efficiency labor variances. The price variance arises from the difference between the actual wage rate and the budgeted rate, while the efficiency variance results from the difference in the actual hours worked versus the budgeted hours for the level of output achieved.

When a Journal Entry Is Made in a Standard Cost