Problem 1 Variance Analysis

The BirthdayBoy Companys costing system has two direct-cost categories: direct materials and direct manufacturing labor. Manufacturing overhead (both variable and fixed) is allocated to products on the basis of standard direct manufacturing labor hours (DLH). At the beginning of 2020, the Company budgeted production of 4,000 units for the period and adopted the following standards for its manufacturing costs:

	Input	Cost per Output Unit
Direct materials Direct manufacturing labor Manufacturing overhead: Variable Fixed Standard manufacturing cost per output unit	3 lbs. at $10 per lb. 2 hrs. at $18 per hr. $10 per DLH $12 per DLH	$ 30 36 20 24 $110

Input price variances are isolated upon purchase. Input efficiency variances are isolated at the time of usage. The records for the period indicate the following:

Direct materials purchased Direct materials used Direct manufacturing labor Actual variable manufacturing overhead Actual fixed manufacturing overhead Actual production

14,000 lbs. at $10.25 per lb 11,200 lbs. 7,800 hrs. at a total of $138,450 $86,000 $100,000 3,800 output units

Required:

1. For the period, compute the following variances, indicating whether each is favorable (F) or unfavorable (U):
   1. Direct materials price variance
   2. Direct materials efficiency variance
   3. Direct manufacturing labor price variance
   4. Variable manufacturing overhead efficiency variance
   5. Production-volume variance
2. Prepare journal entries for the direct materials price and efficiency variances.
3. Provide a possible explanation for each variance calculated in part a) (i.e., a total of 5 explanations). For example, if actual price is greater than budgeted price, then state a reason why this might be the case.