Question & Answer: Trueform Products, Inc., produces a broad line of sports equipment and uses a standard cost system for control purposes. Last year the c…..

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: 3.8 feet at $3.30 per foot $ 12.54
      Actual: 4.2 feet at $3.20 per foot $ 13.44
  Direct labor:
      Standard: 1.80 hours at $5.10 per hour 9.18
      Actual: 1.70 hours at $5.70 per hour 9.69
  Variable manufacturing overhead:
      Standard: 1.80 hours at $1.70 per hour 3.06
      Actual: 1.70 hours at $2.40 per hour 4.08
  Total cost per football $ 24.78 $ 27.21
The president was elated when he saw that actual costs exceeded standard costs by only $2.43 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, 18,900 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).)

 

Expert Answer

 

1a)

Material Quantity variance = standard price * (Actual quantity – standard quantity for actual output)

= 3.3 * [18900 – (4500*3.8)]

= 5940U

b) Material price variance = (Actual price – standard price)* Actual quantity

= (3.2 – 3.3) * 18900

= -1890 F

2)

Material price variance 1890

Accounts payable 60480 (18900*3.2)

Work in process inventory 56430 (4500 * 3.8* 3.3)

Material quantity variance 5940

3) labor efficiency variance = SR * (AH – SH for actual output)

= 5.1 * [7650 – (4500*1.8)]

= -2295 F

Labor rate variance = (Actual rate – standard rate)* Actual hours

=(5.7 – 5.1) * 7650

= 4590 U

Work in process inventory 39015 (4500 *1.7*5.1)

Labor rate variance = 4590

Labor efficiency variance 2295

Wages payable 41310

3) Variable overhead rate variance = actual overhead – (AH * SR)

= 7650 * 2.4 – 7650 *1.7

= 5355 U

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