Question
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 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 todecreased increased competition. |
The materials efficiency variance: | The production manager may have employed higher-skilled lower-skilled workers or the budgeted materials standards were set tooloosely strictly . |
The labor price variance: | An increase A reduction in labor rates due to abooming economy recession . |
The labor efficiency variance: | Less More efficient workers being employed or the use ofhigher 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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