Samuel Douglas 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. Douglas feels that manufacturing overhead is most closely related to material usage. Therefore, DDC allocates manufacturing overhead to production based upon pounds of materials used. E: (Click the icon to view the standards.) (Click the icon to view the actual results for April.) Read the requirements - X Requirement 1. For the month of April, compute the variances, indicating whether each is favorable (F) or unfavorable (U). Data Table Data Table a. Direct materials price variance (based on purchases) is 12100 U b. The direct materials efficiency variance is 8000 F C. The direct manufacturing labor price variance is 58000|| U Actual results for April 2017 were as follows: Production 32,000 doorknobs Direct materials purchased 12,100 lb. at $9/b. Direct materials used 8,600 lbs. Direct manufacturing labor 29,000 hours for $609,000 Variable manufacturing overhead $64.200 Fixed manufacturing overhead $160,000 At the beginning of 2017, DDC budgeted annual production of 440,000 doorknobs and adopted the following standards for each doorknob Input Cost/Doorknob Direct materials (brass) 0.3 lb. @ $8/lb. S 2.40 Direct manufacturing labor 1.2 hours @ $19/hour 22.80 Variable manufacturing overhead $4/b x 0.3 lb. 1.20 4.20 $14/1b. x 0.3 lb. Fixed manufacturing overhead $ 30.60 Standard cost per doorknob 178600 d. The direct manufacturing labor efficiency variance is F e. The variable manufacturing overhead spending variance is 29800 U f. The variable manufacturing overhead efficiency variance is 5000 F g. The production-volume variance is Print Done h. The fixed manufacturing overhead spending variance is Print Done Requirement 2. Can Douglas use any of the variances to help explain any of the other variances? Give examples. The direct materials price variance indicates that DDC paid more for brass than they had planned. If this is because they purchased a higher quality brass, it may explain why they used less brass than expected (leading to an) favorable material efficiency variance) variable overhead efficiency variance. The purchase of this quality of brass may also explain why it took less labor time to produce the doorknobs than expected (the favorable direct In turn, since variable manufacturing overhead is assigned based on pounds of materials used, this directly led to the favorable labor efficiency variance) Finally, the unfavorable direct labor price variance could imply that the workers who were hired were more experienced than expected, which could also be related to the positive direct material and direct labor efficiency variances
