Question

Samuel Thomas is a cost accountant and business analyst for Dashing Design Company? (DDC), which manufactures expensive brass doorknobs. DDC uses two direct cost? categories: direct materials and direct manufacturing labor. Thomas feels that manufacturing overhead is most closely related to material usage.? Therefore, DDC allocates manufacturing overhead to production based upon pounds of materials used.

At the beginning of 2014?, DC budgeted annual production of 450,000 doorknobs and adopted the following standards for each? doorknob:

	Input	Cost/Doorknob
Direct materials (brass)	0.3 lbs. @ $11/lb.	$3.30
Direct manufacturing labor	1.2 hours @ $18/hour	21.60
Manufacturing overhead:
Variable	$5/lb x 0.3 lb.	1.50
Fixed	$14/lb. x 0.3 lb.	4.20
Standard cost per doorknob		$30.60

Actual results for April 2014 were as? follows:

Production	29,000 doorknobs
Direct materials purchased	12,300 lbs. at $12/lb.
Direct materials used	8,500 lbs.
Direct manufacturing labor	29,300 hours for $615,300
Variable manufacturing overhead	$64,700
Fixed manufacturing overhead	$160,000

Requirements:

a. Direct materials price variance? (based on? purchases)

b. Direct materials efficiency variance

c. Direct manufacturing labor price variance

d. Direct manufacturing labor efficiency variance

e. Variable manufacturing overhead spending variance

f. Variable manufacturing overhead efficiency variance

g. ?Production-volume variance

h. Fixed manufacturing overhead spending variance

Answer 1

Budgeted 450000	SQ	SR	Standard Unit Cost
Direct Material	0.3	11	3.3
Direct Labor	1.2	18	21.6
Variable OVH	0.3	5	1.5
Fixed OVH	0.3	14	4.2
Total Standard Cost			30.6
Actual: Unit produced and sold 29000
Direct Material	8500	12	102000
Direct Material Purchased	12300	12	147600
Direct Labor	29300	21.00	615300
Variable OVH	8500	7.61	64700
Fixed OVH	8500	18.82	160000
Direct Material Variance:
Material Efficiency Variance	(SQ-AQ)*SR	((0.3*29000)-12300)*11	39600 U
Material Price Variance	(SP-AP)*AQ	(11-12)*12300	12300 U
Direct Labor Variance:
Labor Efficiency Variance	(SQ-AQ)*SR	((1.2*29000)-29300)*18	99000 F
Labor Price Variance	(SP-AP)*AQ	(21-18)*29300	87900 U
Variable OVH Variance:
Labor Efficiency Variance	(SQ-AQ)*SR	((0.3*29000)-12300)*5	18000 U
Labor Price Variance	(SP-AP)*AQ	(5-7.61)*12300	32103 U
Fixed OVH Variance:
Fixed Overhead Volume Variance	Standard Overhead-Budgeted Overhead	121800-157500	35700 F
Fixed Overhead Spending Variance	Budgeted Overhead-Actual oVerhead	157500-160000	2500 U
Budgeted Overhead	(450000*4.2)/12=157500
Standard Overhead	0.3*29000*14=121800
Production Volume Variance	(Acutal Units-Budgeted Units)*Budgeted Overhead rate
	(29000-450000/12)*4.2
	(29000-37500)*4.2
	35700 U
An excessive quantity of production is considered to be a favorable variance, while an unfavorable variance is when fewer units are produced than expected.