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 4,500 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: 3.9 feet at $3.50 per foot	$	13.65
Actual: 4.3 feet at $3.30 per foot			$	14.19
Direct labor:
Standard: 1.70 hours at $5.20 per hour		8.84
Actual: 1.60 hours at $5.80 per hour				9.28
Variable manufacturing overhead:
Standard: 1.70 hours at $1.70 per hour		2.89
Actual: 1.60 hours at $2.00 per hour				3.20
Total cost per football	$	25.38	$	26.67

The president was elated when he saw that actual costs exceeded standard costs by only $1.29 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, 19,350 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	Direct Material Variance
	Price variance=(SR-AR)*AQ	322.5	Favourable	(3.5-3.3)*1612.5
	Usage variance=(SQ-AQ)*SR	-525	Unfavourable	(1462.5-1612.5)*3.5
	Total direct material variance	-202.5	Unfavourable
		Debit	Credit
b1	Raw material	5643.75		(1612.5*3.5)
	Material Price Variance		322.5
	Accounts Payavble		5321.25
b2	Work in process	5118.75		(1462.5*3.5)
	Materials price variance	525
	Raw Materials		5643.75	(1612.5*3.5)
2	Direct labour variance
	Rate variance=(SR-AR)*AQ	-4320	Unfavourable	(5.2-5.8)*7200
	Efficiency variance=(SQ-AQ)*SR	2340	Favourable	(7650-7200)*5.2
	Total direct labour variance	-1980	Unfavourable
b1	Work in process	39780		Standard Cost
	Labour Rate varaince	4320
	Labour Efficiency Variance		2340
	Wages Payable		41760	Actual cost
3	Variable Overhead variance
	Rate variance=(SR-AR)*AQ	-2160	Unfavourable	(1.7-2)*7200
	Efficiency variance=(SQ-AQ)*SR	765	Favourable	(7650-7200)*1.7
	Total direct labour variance	-1395	Unfavourable
	Material Variance
	Actual Cost	Actual Rate	Actual Quantity		Standard Cost	Standard Rate	Standard Quantity
	5321.25	3.3	1612.5		5118.75	3.5	1462.50
	(1612.5*3.3)		(4500*4.3)/12		(1462.5*3.5)		(4500*3.9)/12
	Labour Var
	Actual Cost	Actual Rate	Actual Quantity		Standard Cost	Standard Rate	Standard Quantity
	41760	5.8	7200		39780	5.2	7650
			(4500*1.6)				(4500*1.7)
	Variable Manufacturing Overhead
	Actual Cost	Actual Rate	Actual Quantity		Standard Cost	Standard Rate	Standard Quantity
	14400	2	7200		13005	1.7	7650
			(4500*1.6)				(4500*1.7)