Home / Questions / PROBLEM 10B 4 Comprehensive Variance Analysis Journal Entries LO1 LO2 LO3 LO5 Vermont Mil...
PROBLEM 10B–4 Comprehensive Variance Analysis; Journal Entries [LO1, LO2, LO3, LO5]
Vermont Mills, Inc., is a large producer of men’s and women’s clothing. The company uses stan dard 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):
Standard: 1.6 hours at $1.80 per hour . . . . . . . . . . . Actual: 1.4 hours at $2.15 per hour . . . . . . . . . . . . . 
2.88 

3.01 
Total cost per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
$24.48 

$24.54 
During this period, the company produced 4,800 units of product. A comparison of standard and actual costs for the period on a total cost basis is given below:
Actual costs: 4,800 units at $24.54 . . . . . . . . . . 
$117,792 
Standard costs: 4,800 units at $24.48 . . . . . . . . 
117,504 
Difference in cost—unfavorable . . . . . . . . . . . . . 
$ 288 
There was no inventory of materials on hand to start the period. During the period, 21,120 yards of materials were purchased and used in production.
Required:
1. For direct materials:
a. Compute the price and quantity variances for the period.
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.
b. Prepare a journal entry to record the incurrence of direct labor cost for the period.
3. Compute the variable manufacturing overhead rate and efficiency variances.
4. On seeing the $288 total cost variance, the company’s president stated, “This 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.
5. State possible causes of each variance that you have computed.
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