Flexible-budget variances, review of Chapters 7 and 8. David James 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. James feels that manufacturing overhead is most closely related to material usage.

Therefore, DDC allocates manufacturing overhead to production based upon kilograms of materials used.

At the beginning of 2009, DDC budgeted production of 100,000 doorknobs and adopted the following standards for each doorknob:

REQUIRED 1. For the month of April, compute the following variances, indicating whether each is favourable (F) or unfavourable (U).

2. Can James use any of the variances to help explain any of the other variances? Give examples.LO1

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Direct materials (brass) Direct manufacturing labour Manufacturing overhead: Variable Fixed Standard cost per doorknob Input 0.5 kg @ $20/kg 0.25 hours @ $30/hour Cost/Doorknob $10.00 7.50 $10/kg x 0.5 kg $5/kg x 0.5 kg 5.00 2.50 $25.00 Actual results for April 2009 were: Production Direct materials purchased Direct materials used 95,000 doorknobs 50,000 kg at $22/kg 45,000 kg Direct manufacturing labour 20,000 hours for $650,000 Variable manufacturing overhead $400,000 Fixed manufacturing overhead $350,000