Question

Trueform Products, Inc., produces a broad line of sports equipment and uses a standard cost system for control purposes. Last year the company produced 4,800 varsity footballs. The standard costs associated with this football, along with the actual costs incurred last year, are given below (per football):

	Standard Cost		Actual Cost
Direct materials:
Standard: 4.2 feet at $3.60 per foot	$	15.12
Actual: 4.5 feet at $3.40 per foot			$	15.30
Direct labor:
Standard: 1.60 hours at $5.40 per hour		8.64
Actual: 1.30 hours at $6.00 per hour				7.80
Variable manufacturing overhead:
Standard: 1.60 hours at $1.50 per hour		2.40
Actual: 1.30 hours at $2.20 per hour				2.86
Total cost per football	$	26.16	$	25.96

The president was elated when he saw that actual costs exceeded standard costs by only $-0.20 per football. He stated, “I was afraid that our unit cost might get out of hand when we gave out those raises last year in order to stimulate output. But it’s obvious our costs are well under control.”

There was no inventory of materials on hand to start the year. During the year, 21,600 feet of materials were purchased and used in production.

Required:

1.	For direct materials:

a.	Compute the price and quantity variances for the year. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

              

b.	Prepare journal entries to record all activity relating to direct materials for the year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

             

2.	For direct labor:

a.	Compute the rate and efficiency variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

             

b.	Prepare a journal entry to record the incurrence of direct labor cost for the year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

             

3.	Compute the variable overhead rate and efficiency variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

      

Answer 1

1. For direct materials:

Material Price Variance = (Standard Price – Actual Price)*Actual Quantity

= (3.60-3.40)*21,600

= 4,320 F

Direct Material Quantity Variance = (Standard Quantity – Actual Quantity)*Standard Price

= (4.2*4800 – 21,600)*3.6

= 5,184 U

B Journal

Direct material Dr. 72,576

Direct Material Quantity Variance Dr. 5,184

            Bank                                                                                                        73,440                                      Direct Material Price Variance 4,320                                                                                                                                                                                                                                                                               

2. For direct labor:

Rate Variance = (Standard Rate – Actual rate)*Actual Hours

=(5.4 – 6)*6,240

= 3,744 U

Efficiency Variance = (Standard Hours – Actual Hours)*Standard Rate

= (1.6*4800 – 1.3*4800)*5.4

= 7,776 F

B

Direct Labor Dr. 41,472

Direct Labor Rate Variance Dr. 3,744

            Bank                                                                                                        37,440                                          Direct Labor Efficiency Variance                                                             7,776

3.Variable overhead rate variance =        (Standard Rate – Actual rate)*Actual Hours

= (1.5 – 2.2)*6,240

= 4,368 U

Variable Overhead efficiency variance = (Standard Hours – Actual Hours)*Standard Rate

= (1.6*4800- 1.3*4800)*1.5

= 2,160 F