Question

Dwyer​,Inc. is a privately held furniture manufacturer. For August 2014​, Dwyer had the following standards for one of its​ products, a wicker​ chair:

	Standards per Chair
Direct materials	3 square yards of input at	$5.80	per square yard
Direct manufacturing labor	0.5 hour of input at	$10.50		per hour

The following data were compiled regarding actual

performance​:

actual output units​ (chairs) produced, 2,200​; square yards of input purchased and​ used, 6,300​; price per square​ yard, $6.00​; direct manufacturing labor​ costs, $10,165​; actual hours of​ input, 950​; labor price per​ hour, $10.70.

Read the requirements

Requirement 1. Show computations of price and efficiency variances for direct materials and direct manufacturing labor. Give a plausible explanation of why each variance occurred.

​Let's begin by determining the formula used to calculate the actual costs of direct​ materials, then enter the amounts in the formula and calculate the cost.

		x		=	Actual cost
Direct materials		x		=

Next we will calculate the actual input at the budgeted price.

	Actual input	x	Budgeted price	=	Cost
Direct materials		x		=
Direct manufacturing labor		x		=

Determine the formula and calculate the costs for the flexible budget.

		x		=	Flexible budget cost
Direct materials		x		=
Direct manufacturing labor		x		=

Now compute the price and efficiency variances for direct materials and direct manufacturing labor. Label each variance as favorable​ (F) or unfavorable​ (U).

	Price		Efficiency
	variances		variances
Direct materials
Direct manufacturing labor

Now give a plausible explanation of why each variance occurred. Begin with the direct material variances.

The materials price​ variance:	There was an unexpected ▼ decrease increase in materials price per square yard due to ▼ decreased increased competition.
The materials efficiency​ variance:	The production manager may have employed ▼ higher-skilled lower-skilled workers or the budgeted materials standards were set too ▼ loosely strictly .

The labor price​ variance:	▼ A reduction An increase in labor rates due to a ▼ recession booming economy .
The labor efficiency​ variance:	▼ Less More efficient workers being employed or the use of ▼ higher lower quality materials.

Answer 1

Correct Answer:

Standard DATA for		2200	Units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct Material	( 3 lbs x 2200 Units)=6600 lbs	$                  5.80	$        38,280.00
Direct labour	( 0.5 hours x 2200 Units)=1100 hours	$                10.50	$        11,550.00

Actual DATA for		2200	Units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct Material	6300	$            6.00	$      37,800.00
Direct labour	950	$         10.70	$      10,165.00

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                    5.80	-	$                     6.00	)	x	6300
	-1260
	Variance		$             1,260.00			Unfavourable-U

Material Efficiency Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	6600	-	6300	)	x	$       5.80
	1740
	Variance		$             1,740.00			Favourable-F

Material Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$         38,280.00	-	$           37,800.00	)
	480
	Variance		$                 480.00			Favourable-F

Labour Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labour Hours
(	$                  10.50	-	$                   10.70	)	x	950
	-190
	Variance		$                 190.00			Unfavourable-U

Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	1100	-	950	)	x	$    10.50
	1575
	Variance		$             1,575.00			Favourable-F

Labour Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$         11,550.00	-	$           10,165.00	)
	1385
	Variance		$             1,385.00			Favourable-F

The material price variance:

This was an unexpected increase in the material price per square yard due to decreased competition.

The material efficiency variance:

The production manager may have employed higher skilled workers or the budgeted material standards were set too loosely.

Labor price variance:

An increase in the labor rate due to a booming economy

Labor efficiency variance:

More efficient workers being employed or the use of higher quality materials.

End of answer.

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