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Eric Williams is a cost accountant and business analyst for Diamond Design Company (DDC), which manufactures expensive brass doorknobs. DDC uses two direct-cost categories: direct
Eric Williams is a cost accountant and business analyst for Diamond Design Company (DDC), which manufactures expensive brass doorknobs. DDC uses two direct-cost categories: direct materials and direct manufacturing labor. Williams feels that manufacturing overhead is most closely related to material usage. Therefore, DDC allocates manufacturing overhead to production based upon pounds of materials used. Next, complete the table for variable overhead. (Abbreviation used: Manuf = Manufacturing) Actual Costs Actual Input Qty. * Flexible Allocated Incurred Budgeted Price Budget Overhead Variable Manuf. OH e. The variable manufacturing overhead spending variance is f. The variable manufacturing overhead efficiency variance is Complete the table for fixed overhead. Actual Costs Same Budgeted Lump Sum Regardless of Output Level Flexible Allocated Incurred Budget Overhead Fixed Manuf. OH g. The production-volume variance is h. The fixed manufacturing overhead spending variance is Requirement 2. Can Williams use any of the variances to help explain any of the other variances? Give examples. V for brass than they had planned. If this is because they purchased a quality brass, it may explain why they used V brass than expected leading to an) The direct materials price variance indicates that DDC paid material efficiency variance). variable overhead efficiency variance. The purchase of this quality of brass may also explain why it took In turn, since variable manufacturing overhead is assigned based on pounds of materials used, this directly led to the labor time to produce the doorknobs than expected (the direct labor efficiency variance). Finally, the direct labor price variance could imply that the workers who were hired were experienced than expected, which could also be related to the direct material and direct labor efficiency variances. Actual results for April 2017 were as follows: Production 29,000 doorknobs Direct materials purchased 12,400 lb. at $11/lb. Direct materials used 8,500 lbs. Direct manufacturing labor 29,200 hours for $671,600 Variable manufacturing overhead $65,100 Fixed manufacturing overhead $ 158,000 At the beginning of 2017, DDC budgeted annual production of 420,000 doorknobs and adopted the following standards for each doorknob: Input Cost/Doorknob Direct materials (brass) 0.3 lb. @ $10/lb. 3.00 Direct manufacturing labor 1.2 hours @ $17/hour 20.40 Variable manufacturing overhead $5/lb x 0.3 lb. 1.50 4.50 Fixed manufacturing overhead $15/lb. x 0.3 lb. 29.40 Standard cost per doorknob $
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