AULIA OKTAFIANA S - 008201900001

GABRIELLA FREDERICA - 008201900059

GABRIELLA NATALIA SINAGA - 008201900041
MARLIANI - 008201700021
NOVELIA - 008201900042
Comprehensive
Variance
Analysis and Journal Entries
 PROBLEM
VERMONT MILLS, INC.,
IS A LARGE PRODUCER OF MEN’S AND WOMEN’S CLOTHING.
THE COMPANY USES STANDARD COSTS
FOR ALL OF ITS PRODUCTS. THE STANDARD COSTS AND
ACTUAL COSTS FOR A RECENT
PERIOD ARE GIVEN BELOW FOR ONE OF THE COMPANY’S
PRODUCT LINES (PER UNIT OF PRODUCT):

PROBLEM | COMPREHENSIVE VARIANCE

COST: STANDARD           ACTUAL
DIRECT MATERIALS:
STANDARD: DURING THIS
4.0 YARDS AT $3.60 PER YARD ........ $14.40 PERIOD, THE COMPANY PRODUCED 4,800 UNITS OF
ACTUAL: PRODUCT. A COMPARISON OF STANDARD
4.4 YARDS AT $3.35 PER YARD ................................... $14.74   AND ACTUAL COSTS FOR THE PERIOD ON A TOTAL COST
DIRECT LABOR: BASIS IS GIVEN BELOW:
STANDARD:  
1.6 HOURS AT $4.50 PER HOUR ........ $7.20 ACTUAL COSTS:
ACTUAL: 4,800 UNITS AT $24.54 .......................................... $117,792
1.4 HOURS AT $4.85 PER HOUR ................................... $6.79 STANDARD COSTS:
4,800 UNITS AT $24.48 .............................................117,504
VARIABLE DIFFERENCE INCOST—UNFAVORABLE ........................ $ 288
MANUFACTURING OVERHEAD:  
STANDARD: THERE
1.6 HOURS AT $1.80 PER HOUR ....... $2.88 WAS NO INVENTORY OF MATERIALS ON HAND TO START THE
ACTUAL: PERIOD. DURING THE PERIOD,
1.4 HOURS AT $2.15 PER HOUR ................................... $3.01 21,120 YARDS OF MATERIALS WERE PURCHASED AND USED
IN PRODUCTION.
TOTAL
COST PER UNIT               $24.48                $24.54

PROBLEM | COMPREHENSIVE VARIANCE

#1 FOR DIRECT MATERIALS:
A. COMPUTE THE PRICE AND QUANTITY VARIANCES FOR THE PERIOD.
Answer :
Direct materials quantity variance:
= (Actual quantity used × Standard rate) – (Standard quantity allowed × Standard rate)
= (21,120 yards  x $3.60 per yard ) – (19,200 yards* x $3.60 per yard)
= 76,032 – 69,120 = 6,912 U → because actual quantity higher than standard quantity
*(4,800 units of product x 4.0 yards = 19,200 yards)
Direct Material Price Variance:
= (Actual Quantity x Actual Price) – ( Actual Quantity x Standard Price )
= ( Actual costs ) – ( Standard costs )
= (21,120 yards x $3.35 per yard ) – (21,120 yards  x $3.60 per yard)
=$70,752 U – 76,032 F = 5,280 F → because standard costs higher than actual costs
B. PREPARE JOURNAL ENTRIES TO RECORD ALL ACTIVITY RELATING
TO DIRECT MATERIALS FOR THE PERIOD
#2 For Direct Labor :
A. COMPUTE THE RATE AND EFFICIENCY VARIANCES.
Answer :
Direct labor rate : Direct labor efficiency variance
= Actual hour (Actual rate - Standard rate) = Standard rate (Actual hours - Standard hours)
= (1.4 x 4800) (4.85 - 4.50) = 4.50 [(1.4 x 4800) - (1.6 x 4800)]
= 6720 x 0.35 = 4.50 (6720 - 7680)
= $ 2352 F -> Favorable (Actual > Standard) = $ 4320 U -> Unfavorable (Actual < Standard)

B. PREPARE A JOURNAL ENTRY TO RECORD THE INCURRENCE OF DIRECT LABOR COST FOR THE
PERIOD.

#2 FOR DIRECT LABOR | COMPREHENSIVE VARIANCE

 a. Variable overhead rate variance :
#3 Compute (actual hours worked x actual rate) – (actual hours worked x
standard rate)
the variable = ((4.800 units x 1.4 hours per unit) x 2.15) – (4.800 units x
manufacturing 1.4 hours per unit) x 1.8)
= 14,448 – 12,096 = 2,352
overhead rate
& efficiency b. Variable overhead efficiency variance:
variance (Actual hours worked x standard rate) – (Standard hours
allowed x standard rate)
=(6,720 x 1.8) – ((4.800 units x 1.6 hours per unit) x 1.8)
= 12,096 – 13,824 = 1,728
 #4 On seeing the $288 total cost variance, the company's president stated,
his variance of $288 is only 0.2% of the $117,504 standard cost for the period.
It's obvious that our costs are well under control. "Do you agree?" Explain

No. This total variance is made up of several quite large

individual variances, some of which may warrant

investigation
#5 State Possible Causes of Each Variance That You Have Computed

For Material Variances For Labor Variances

1. Unfavorable Quantity Variance: 1. Favorable Efficiency Variance
-Inexperienced or untrained workers - Use of highly skilled workers
-Inaccurate standards - Use of better quality raw materials
-Lack of motivation -Training of work force in improved
-Poorly adjusted machines production techniques and
2. Favorable Price Variance methodologies
-Good price 2. Unfavorable Rate Variance
-Unusual discount -Incorrect standards
-Inferior quality materials -Pay Premiums

Variable Overhead Variance

Favorable Efficiency Variable
- Use of highly skilled workers
-Use better quality raw materials
2. Unfavorable Rate Variance
- Increases in costs
- Waste or theft