Question

Oficina Bonita Company manufactures office furniture. An unfinished desk is produced for $34.55 and sold for $65.65. A finished desk can be sold for $74.00. The additional processing cost to complete the finished desk is $6.60.

Prepare a differential analysis. Round your answers to two decimal places.

Differential Analysis Sell Unfinished (Alternative 1) or Process Further into Finished (Alternative 2) Desks
	Sell Unfinished Desks (Alternative 1)	Process Further into Finished Desks (Alternative 2)	Differential Effects (Alternative 2)
Revenues per desk	$	$	$
Costs per desk
Profit (loss) per desk	$	$	$

Should the company sell unfinished desks or process further and sell finished desks?
Oficina Bonita Company should sell unfinished desks/process further

Direct Materials Variances

The following data relate to the direct materials cost for the production of 1,900 automobile tires:

Actual:	57,600 lbs. at $1.7 per lb.
Standard:	56,400 lbs. at $1.65 per lb.

a. Determine the direct materials price variance, direct materials quantity variance, and total direct materials cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

Direct Materials Price Variance	$
Direct Materials Quantity Variance	$
Total Direct Materials Cost Variance	$

Answer 1

Differential analysis
Sell unfinished or process further into finished desks
	Sell unfinished desks	Process further into finished desks	Differential effects
	(Alternative 1)	(Alternative 2)	(Alternative 2)
Revenues per desk	$65.65	$74.00	$8.35
Costs per desk	$34.55	$41.15	$6.60
Profit (loss) per desk	$31.1	$32.85	$1.75
Note:
Cost per desk if process further	$41.15	34.55+6.60
Profit (loss)	Revenue per desk-Costs per desk
Decision:
Oficina Bonita should process the desk further and sell finished desks The revenue from further processing is higher than costs of further processing and thus desk should be processed further.

Answer 2:

Direct Material Quantity variance	$                1,980	U
Direct Material Price variance	$                2,880	U
Total Direct Material Cost variance	$               4,860	U

Working:

Material Quantity variance = (Standard Quantity - Actual Quantity) * Standard Price

= (56,400-57,600)*$7.00= $1,980 U

Material Price Variance = (Standard Price - Actual Price paid)* AQ purchased

= ($1.65-$1.70)*57,600= $2,880 U

Total Direct Material cost variance= Direct Material Price variance+ Direct Material Qty variance

=$2,880+$1,980

=$4,860 U