Trueform Products, Inc., produces a broad line of sports equipment and uses a st

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 Actual Cost Cost Direct materials: $14.35 Standard: 4.1 feet at $3.50 per foot Actual: 4.5 feet at $3.40 per foot $15.30 Direct labor Standard: 1.60 hours at $5.20 per hour Actual: 1.40 hours at $5.80 per hour 8.32 8.12 Variable manufacturing overhead Standard: 1.60 hours at $1.50 per hour Actual: 1.40 hours at $2.20 per hour 2.40 3.08 Total cost per footbal $25.07 s 26.50

Explanation / Answer

1.Material Price Variance= Actual Quantity Purchased* (Actual rate-standard rate)

=21600*(3.4-3.5)

=2160F

Material Price Variance is favorable since the actual purchase price is less than standard price.

Standard Quantity=4800*4.1=19680feet

Material quantity variance= (standard quantity-Actual Quantity)* standard price

= (19680-21600)*3.50

=6720 U

Since Actual quantity is greater than standard quantity used, the material quantity usage variance is negative.

Journal Entry

1.Purchase of raw material on account

Raw material Inventory A/c …DR               75600

                   To Material Price Variance                 2160

                    To Accounts Payable                            73440

2. Use of raw material in production

Work in Process…Dr                       68880

Material Quantity Variance..Dr         6720

               To Raw Material Inventory                              75600

2.Actual Labor hours=1.40*4800=6720

Labor rate variance= Actual labor hours*( actual rate-standard rate)

=6720*(5.8-5.20) = 4032 U

Since Actual rate is more than standard rate of labor rates , the rate variance is unfavorable.

Standard hours=1.60*4800=7680

Labor efficiency variance= (standard hours-Actual hours)*standard rate

=(7680-6720)*5.2

=4992F

Journal Entry

Work in Progress A/c..Dr 40896

Labor Rate Variance…Dr   4032

            To Direct Labor                               39936

            To Labor Efficiency Variance         4992

3. Variable Overhead rate variance= Actual hours worked*(Actual overhead rate-standard overhead rate)

=6720*(2.2-1.5)

=4704U

Since, the Actual overhead rate is higher than standard overhead rate, the variable overhead rate variance is unfavorable.

Variable overhead efficiency variance= (standard hours-actual hours)*standard rate

=(7680-6720)*1.50

=1440 F

Since, the actual hours is less than standard hours, the overhead efficiency variance is favorable.

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