=+12-29 KK Flexible-budget variances (review of Chapters 11 and 12)

David Jamison is a cost accountant and business analyst for Doorknob Design Company (DDC), which manufactures expensive brass doorknobs. DDC uses two direct cost categories: direct materials and direct manufacturing labour. Jamison feels that manufacturing overhead is most closely related to materials usage. Therefore, DDC allocates manufacturing overhead to production based upon kilograms of materials used.

Required At the beginning of 2014, DDC budgeted production of 400000 doorknobs and adopted the following standards for each doorknob:

Input Cost per doorknob Direct materials (brass) 0.3 kg @ $10/kg $3.00 Direct manufacturing labour 1.2 hours @ $20/hour 24.00 Manufacturing overhead:

Variable $6/kg × 0.3 kg 1.80 Fixed $15/kg × 0.3 kg 4.50 Standard cost per doorknob $33.30 Actual results for April 2014 were:

Production 35 000 doorknobs Direct materials purchased 12 000 kg @ $11/kg Direct materials used 10 450 kg Direct manufacturing labour 38 500 hours for $808 500 Variable manufacturing overhead $64 150 Fixed manufacturing overhead $152 000 Required 1 For the month of April, calculate the following variances, indicating whether each is favourable (F) or unfavourable (U):

a direct materials price variance (based on purchases)

b direct materials efficiency variance c direct manufacturing labour price variance d direct manufacturing labour efficiency variance e variable manufacturing overhead spending variance f variable manufacturing overhead efficiency variance g production-volume variance h fixed manufacturing overhead spending variance.

2 Can Jamison use any of the variances to help explain any of the other variances? Give examples.