Inc. is a privately held furniture manufacturer. For August

2014,

Dunn

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

	Standards per Chair
Direct materials	3 square yards of input at	$5.90	per square yard
Direct manufacturing labor	0.5 hour of input at	$10.30		per hour

The following data were compiled regarding actual

performance:

actual output units (chairs) produced,

2,200;

square yards of input purchased and used,

6,300;

price per square yard,

$6.00;

direct manufacturing labor costs,

$9,450;

actual hours of input,

900;

labor price per hour,

$10.50.

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.

		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 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:	A reduction An increase in labor rates due to a recession booming economy .
The labor efficiency variance:	Less More efficient workers being employed or the use of higher lower quality materials.