PROBLEM 9B–3A Comprehensive Variance Analysis; Journal Entries [LO2, LO3, LO4, LO6]

Trueform Products, Inc., produces a broad line of sports equipment and uses a standard cost system for control purposes. Last year the company produced 8,000 varsity footballs. The standard costs associated with this football, along with the actual costs incurred last year, are given below (per football):

Standard Actual Cost Cost Direct materials:

Standard: 3.7 feet at $5.00 per foot .................... $18.50 Actual: 4.0 feet at $4.80 per foot ......................... $19.20 Direct labor:

Standard: 0.9 hours at $7.50 per hour ................ 6.75 Actual: 0.8 hours at $8.00 per hour ..................... 6.40 Variable manufacturing overhead:

Standard: 0.9 hours at $2.50 per hour ................ 2.25 Actual: 0.8 hours at $2.75 per hour ..................... 2.20 Total cost per football ............................................. $27.50 $27.80 The president was elated when he saw that actual costs exceeded standard costs by only $0.30 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, 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.