Question
. Samantha Jones is a cost accountant and business analyst for Doorknob Design Company (DDC), which manufactures expensive brass doorknobs. DDC uses two direct cost
. Samantha Jones is a cost accountant and business analyst for Doorknob Design Company (DDC), which manufactures expensive brass doorknobs. DDC uses two direct cost categories: direct materials and direct manufacturing labor. Jones feels that manufacturing overhead is most closely related to direct manufacturing labor hours. Therefore, DDC allocates manufacturing overhead to production based upon direct labor hours.
At the beginning of 2018, DDC budgeted annual production of 400,000 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 @ $20/hour 24.00
Manufacturing overhead:
Variable $1.50/hr. x 1.2 hours 1.80
Fixed $3.75/hr. x 1.2 hours 4.50
Standard cost per doorknob $ 33.30
Actual results for April 2018 were as follows:
Production 35,000 doorknobs
Direct materials purchased 12,000 lb. at $11/lb.
Direct materials used 10,450 lb.
Direct manufacturing labor 38,500 hours for $808,500
Variable manufacturing overhead $64,150
Fixed manufacturing overhead $152,000
Required:
For the month of April, compute the following variances, indicating whether each is favorable (F) or unfavorable (U):
Direct materials price variance (based on purchases)
Direct materials efficiency variance
Direct manufacturing labor price variance
Direct manufacturing labor efficiency variance
Variable manufacturing overhead spending variance
Variable manufacturing overhead efficiency variance
Production-volume variance
Fixed manufacturing overhead spending variance
Discuss the possible explanation for the variances.
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