Nathan

Hopkins

is a cost accountant and business analyst for

Dashing

Design Company (DDC), which manufactures expensive brass doorknobs. DDC uses two direct-cost categories: direct materials and direct manufacturing labor.

Hopkins

feels that manufacturing overhead is most closely related to material usage. Therefore, DDC allocates manufacturing overhead to production based upon pounds of materials used.

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Part 1

Requirement 1. For the month of April, compute the variances, indicating whether each is favorable (F) or unfavorable (U).

Before computing the variances complete the tables below. Begin by completing the table for direct materials.

		Actual Input Qty. Budgeted Price
	Actual Costs Incurred	Purchases	Usage	Flexible Budget
Direct materials

Part 2

a.

Direct materials price variance (based on purchases) is

Part 3

b.

The direct materials efficiency variance is

Part 4

Now complete the table for direct labor.

	Actual Costs Incurred	Actual Input Qty. Budgeted Price	Flexible Budget
Direct Manuf. Labor

Part 5

c.

The direct manufacturing labor price variance is

Part 6

d.

The direct manufacturing labor efficiency variance is

Part 7

Next, complete the table for variable overhead. (Abbreviation used: Manuf = Manufacturing)

	Actual Costs Incurred	Actual Input Qty. Budgeted Price	Flexible Budget	Allocated Overhead
Variable Manuf. OH

Part 8

e.

The variable manufacturing overhead spending variance is

Part 9

f.

The variable manufacturing overhead efficiency variance is

Part 10

Complete the table for fixed overhead.

		Same Budgeted Lump
	Actual Costs	Sum Regardless	Flexible	Allocated
	Incurred	of Output Level	Budget	Overhead
Fixed Manuf. OH

Part 11

g.

The production-volume variance is

Part 12

h.

The fixed manufacturing overhead spending variance is

Part 13

Requirement 2. Can

Hopkins

use any of the variances to help explain any of the other variances? Give examples.The direct materials price variance indicates that DDC paid

less

more

for brass than they had planned. If this is because they purchased a

higher

lower

quality brass, it may explain why they used

less

more

brass than expected (leading to a(n)

favorable

unfavorable

material efficiency variance).

Part 14

In turn, since variable manufacturing overhead is assigned based on pounds of materials used, this directly led to the

favorable

unfavorable

variable overhead efficiency variance. The purchase of this quality of brass may also explain why it took

less

more

labor time to produce the doorknobs than expected (the

favorable

unfavorable

direct labor efficiency variance).

Part 15

Finally, the

favorable

unfavorable

direct labor price variance could imply that the workers who were hired were

less

more

experienced than expected, which could also be related to the

negative

positive

direct material and direct labor efficiency variances.

Data table At the beginning of 2020, DDC budgeted annual production of 410,000 doorknobs and adopted the following standards for each doorknob: Data table