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# Compute variances for direct materials, labor, variable OH

See attached file for proper format.

Topic 11: Standard Costs & performance Analysis

eLearning Assignment Question:[A-10]

Trueform Company 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 Costs and Operating Performance Measures
Standard
Cost
Actual 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 S8.00 per hour \$6.40
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 meters of materials
were purchased and used in production.

Required:

1. For direct materials, compute the price and quantity variance for the year.
2. For direct labor, compute the rate and efficiency variances for the year.
3. For variable overhead, compute the 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.

#### Solution Preview

See attached Excel file.

Q4:
Some costs are under control, but not all. The "net" of all the variances gives the impressions that everything was close to standard. This is not true. Materials are purchased at less than standard prices but waste and quantity used offsets this ...

#### Solution Summary

You variances are computed in excel. The president is not correct and a discussion is given explaining why not. Potential causes for variances are given in bullet format (you can expand into whatever length discussion you need but the ideas are there to jog your mind into the right direction).

\$2.19