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DawsonDawson, Inc. is a privately held furniture manufacturer. For August 20142014, DawsonDawson had the following standards for one of its products, a wicker chair: Standards

DawsonDawson,

Inc. is a privately held furniture manufacturer. For August

20142014,

DawsonDawson

had the following standards for one of its products, a wicker chair:

Standards per Chair

Direct materials

3 square yards of input at

$5.70

per square yard

Direct manufacturing labor

0.5 hour of input at

$10.60

per hour

The following data were compiled regarding actual

performance:

actual output units (chairs) produced,

2 comma 9002,900;

square yards of input purchased and used,

8 comma 3008,300;

price per square yard,

$ 5.80$5.80;

direct manufacturing labor costs,

$ 10 comma 296$10,296;

actual hours of input,

990990;

labor price per hour,

$ 10.40$10.40.

Read the requirements

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.

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 input

x

Actual price

=

Actual cost

Direct materials

x

=

Next we will calculate the actual input at the budgeted price.

Actual input

x

Budgeted price

=

Cost

Direct materials

x

=

Direct manufacturing labor

x

=

Determine the formula and calculate the costs for the flexible budget.

x

=

Flexible budget cost

Direct materials

x

=

Direct manufacturing labor

x

=

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

Direct manufacturing labor

Now give a plausible explanation of why each variance occurred. Begin with the direct material variances.

The materials price variance:

There was an unexpected

decrease

increase

in materials price per square yard due to

decreased

increased

competition.

The materials efficiency variance:

The production manager may have employed

higher-skilled

lower-skilled

workers or the budgeted materials standards were set too

loosely

strictly

.

The labor price variance:

An increase

A reduction

in labor rates due to a

booming economy

recession

.

The labor efficiency variance:

Less

More

efficient workers being employed or the use of

higher

lower

quality materials.

Choose from any list or enter any number in the input fields and then continue to the next question.

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