Question

LO10-2.L010-2, PROBLEM 108-3 Comprehensive Variance Analysis: Journal Entries [LO10-1, L01 Wandard cost vyv alls. The standart L010-5) ear, are given bele Trueform Products, Inc., produces a broad line of sports equipment and uses a stand tem for control purposes. Last year the company produced 8,000 varsity footballs costs associated with this football, along with the actual costs incurred last year, an (per football): Standard Cost Actual Cost $18.50 $19.20 6.75 Direct materials: Standard: 3.7 feet at $5.00 per foot ........ Actual: 4.0 feet at $4.80 per foot ... Direct labor: Standard: 0.9 hours at $7.50 per hour .... Actual: 0.8 hours at $8.00 per hour... Variable manufacturing overhead: Standard: 0.9 hours at $2.50 per hour... Actual: 0.8 hours at $2.75 per hour .... Total cost per football .... 6.40 2.25 2.20 $27.50 $27.80 The president was elated when he saw that actual costs exceeded standard costs by only $0.30 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, 32,000 feet of materials were purchased and used in production. Required: 1. For direct materials: a. Compute the price and quantity variances for the year. b. Prepare journal entries to record all activity relating to direct materials for the year. 2. For direct labor: a. Compute the rate and efficiency variances. b. Prepare a journal entry to record the incurrence of direct labor cost for the year. 3. Compute the variable overhead rate and efficiency variances. 4. Was the president correct in his statement that "our costs are well under control"? Explain. 5. State possible causes of each variance that you have computed.
i was just wondering if you could completely walk through this problem for me thanks

Answer 1

Part 1 A

Materials price variance= AQ*(AP-SP) = 32000*(4.80-5) = -6400 =$6400 F

Materials quantity variance= SP*(AQ-SQ) = 5.00*(32000-29600) = $12000 U

Part 1 B

No.	Account titles and explanation	debit	credit
1	raw materials (32000*5)	160000
	Materials price variance		6400
	Accounts payable (32000*4.80)		153600
2	work in process (29600*5)	148000
	Materials quantity variance	12000
	Raw materials (32000*5)		160000

Part 2 a

Labor rate variance= AH*(AR-SR) = 6400*(8-7.50) = 3200 U

Labor efficiency variance= SR*(AH-SH) = 7.50*(6400-7200) = -6000 = $6000 F

Part 2 B

No.	Account titles and explanation	Debit	credit
1	work in process (7200*7.50)	54000
	Labor rate variance	3200
	Labor efficiency variance		6000
	Wages payable (6400*8)		51200

Part 3

Variable overhead spending variance= AH*(AR-SR) = 6400*(2.75-2.50) = 1600 U

Variable overhead efficiency variance= SR*(AH-SH) = 2.50*(6400-7200) = -2000= $2000 F

Part 4

His statement is not correct because there is large unfavourable material quantity variance and overhead spending variance. The idea to increase output by giving raises to employees is a good idea but its implementation didn't prove to be effective as it resulted into high labor rate variance

Part 5

Possible reasons for variance

favourable material price variance: inferior, quality materials drop in market price, discount on quantity purchased

Unfavourable materials quantity variance: inferior quality materials and skilled workers and carelessness

Unfavourable labour rate variance: use of highly skilled workers, pay scale changes, overtime working hours

Favourable labour efficiency variance: high quality of materials, highly skilled employees, use of properly maintained equipments

Unfavourable variable overhead spending variance: trees in wastage, uneconomical purchase, increase in cost

Favourable variable overhead efficiency variance: high quality of materials, highly Skilled employees, use of properly maintained equipments