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

Answer 1

	Actual price	x	Actual input	=	Actual cost
Direct materials	$                          6.00	x	6300	=	$         37,800
	Actual input	x	Budgeted price	=	Cost
Direct materials	6300	x	$                   5.80	=	$         36,540
Direct manufacturing labor	950	x	$                 10.50	=	$           9,975
	Budgeted input for actual output	x	Budgeted price	=	Flexible Budget Cost
Direct materials	6600	x	$                   5.80	=	$         38,280
Direct manufacturing labor	1100	x	$                 10.50	=	$         11,550
	Price		Efficiency
	Variances		Variances
Direct materials	$                       1,260	U	$                 1,740	F
Direct manufacturing labor	$                           190	U	$                 1,575	F