Damico, Inc. is a privately held furniture manufacturer. For August 2017, Damico 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, 2,600; square yards of input purchased and used, 7,500; price per square yard, $6.00; direct manufacturing labor costs, $8,820; actual hours of input, 900; labor price per hour, $9.80. 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. A Data Table = Actual cost Direct materials Standards per Chair Next we will calculate the actual input at the budgeted price. Direct materials Direct manufacturing labor 3 square yards of input at $ 5.90 per square yard 0.5 hour of input at $ 10.00 per hour Actual input Budgeted price Cost Direct materials Direct manufacturing labor Requirements 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). 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 10,000 square yards of materials were purchased (at $6.00 per square yard), even though only 7,500 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. Price Efficiency variances variances Direct materials Direct manufacturing labor Print Print Done Done Now give a plausible explanation of why each variance occurred. Begin with the direct material variances. The materials price variance: There was an unexpected in materials price per square yard due to competition. The production manager may have employed workers or the budgeted materials standards were set too The materials efficiency variance: The labor price variance: v in labor rates due to a The labor efficiency variance: efficient workers being employed or the use of quality materials. Requirement 2. Suppose 10,000 square yards of materials were purchased (at $6.00 per square yard), even though only 7,500 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 DO O
