Oakwood Inc., manufactures end tables, armchairs, and other wood furniture products from high-quality materials. The company uses a standard costing system and isolates variances as soon as possible. The purchasing manager is responsible for controlling direct material price variances, and production managers are responsible for controlling usage variances. During November, the following results were reported for the production of American Oak armchairs:
Units produced 1500 armchairs
Direct materials purchased 19000 board feet
Direct materials issued into production ............................ 17200 beard feet
Standard cost per unit (12 board feet x $8) $96 per unit produce
Purchase price variance $2850 unfavorable
Required:
a. Calculate the actual price paid per hoard foot purchased.
b. Calculate the standard quantity of materials allowed (in board feet) for the number of units produced.
c. Calculate the direct materials usage variance.
d. What is the most likely explanation for the price and usage variances? Is this a good trade-off for management of Oakwood Inc., to make? Explain your answer.