3. Drasher, Inc. is a privately held furniture manufacturer. For August 2017. Drasher had the following standards for one of its products, a wicker chair. (Click the icon to view the standards per chair) The following data were compiled regarding actual performance: actual output units (chairs) produced, 2,000 square yards of input purchased and used, 5,600; price per square yard, $5.20; direct manufacturing labor costs, $10,692, actual hours of input, 990; labor price per hour, $10.80. 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. Actual cost Direct materials Next we will calculate the actual input at the budgeted price. Actual input Direct materials Direct manufacturing labor Budgeted price Cost Determine the formula and calculate the costs for the flexible budget. = Flexible budget cost Direct materials Direct manufacturing labor 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 (5) (6) Direct manufacturing labor 1 (7) (8) Now give a plausible explanation of why each variance occurred. Begin with the direct material variances in materials price per square yard due to The materials price variance: There was an unexpected (9) (10) competition The materials efficiency variance: The production manager may have employed (11) workers or the budgeted materials standards were set too (12) The labor price variance: (13) in labor rates due to a (14) The labor efficiency variance: (15) quality materials efficient workers being employed or the use of (16) - Requirement 2. Suppose 8,000 square yards of materials were purchased at 55 20 per square yard), even though only 5,600 square yards were used. Suppose further that variances are identified at their most timely control point accordingly direct materials price variances are isolated and traced at the time of purchase to the purchasing department rather than to the production department. Compute the price and efficiency variances under this approach Begin with recalculating the costs using the information provided for the alternative approach Actual input Actual cost Budgeted price Flexible budget cost Purchasing Production Now compute the direct materials price and efficiency variances. Label each variance as favorable (F) or unfavorable (U). Price Efficiency variance variance Direct materials (17) (18) 1: Data Table Direct materials Direct manufacturing labor Standards per Chair 3 square yards of input at $ 5.10 per square yard 0.5 hour of input at $ 10.70 per hour 2: Requirements 1. Show computations of price and efficiency variances for direct materials and direct manufacturing labor Give a plausible explanation of why each variance occurred. 2. Suppose 8,000 square yards of materials were purchased at $5.20 per square yard), even though only 5,600 square yards were used. Suppose further that variances are identified at their most timely control point, accordingly, direct materials price variances are isolated and traced at the time of purchase to the purchasing department rather than to the production department. Compute the price and efficiency variances under this approach. O Budgeted price (1) O Actual input O Actual price O Budgeted input for actual output (2) O O Budgeted price Actual input Actual price Budgeted input for actual output O Budgeted price (3) O Actual input Actual price O Budgeted input for actual output O Budgeted price (4) O O Actual input O Actual price O Budgeted input for actual output (5) OF OU (6) OF OU (8) O OF (9) O decrease Increase (10) O decreased increased (11) O higher skilled O lower-skiled (12) O loosely O strictly (13) O A reduction O An increase (14) O recession O booming economy (15) Less More (16) higher O lower (17) O OF (18) O
