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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. At the beginning of 2017, DDC budgeted annual production of 396,000 doorknobs and adopted the following standards for each doorknob: Input 0.2 lb. @ $11/lb. 1 hour @ $17/hour Cost/Doorknob $ 2.20 17.00 Direct materials (brass) Direct manufacturing labor Manufacturing overhead: Variable Fixed Standard cost per doorknob 2.00 $10/1b. x 0.2 lb. $20/lb. x 0.2 lb. 4.00 $29.40 Actual results for April 2017 were as follows: Production Direct materials purchased Direct materials used 30,000 doorknobs 12,000 lb. at $10/lb. 8,000 lbs. Direct manufacturing labor Variable manufacturing overhead Fixed manufacturing overhead 29,000 hours for $600,000 $ 70,000 $150,000 Required: 1. For the month of April, compute the following variances, indicating whether each is favorable (F) or unfavorable (U): a. Direct materials price variance (based on purchases) b. Direct materials efficiency variance c. Direct manufacturing labor price variance d. Direct manufacturing labor efficiency variance e. Variable manufacturing overhead spending variance f. Variable manufacturing overhead efficiency variance g. Fixed manufacturing overhead spending variance h. Production-volume variance 2. Can Williams use any of the variances to help explain any of the other variances? Give examples
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