There was an unexpected DECREASE/INCREASE in materials price per square yard due to DECREASED/INCREASED competition.

The production manager may have employed HIGHERED SKILLED/LOWER SKILLED workers or the budgeted materials standards were set too LOOSELY/STRICTLY.

An INCREASE/REDUCTION in labor rates due to a BOOMING ECONOMY/RECESSION.

LESS/MORE efficient workers being employed or the use of HIGHER/LOWER quality materials.

Requirements 1. Show computations of price and efficiency variances for direct materials and direct manufacturing labor. Give a plausible explanation of why each variance occurred. 2. Suppose 9,300 square yards of materials were purchased (at $6.10 per square yard), even though only 6,900 square yards were used. Suppose further that variances are identified at their most timely control point; accordingly, direct materials price variances are isolated and traced at the time of purchase to the purchasing department rather than to the production department. Compute the price and efficiency variances under this approach. Print Done Dunn, 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 0.5 hour of input at $ 10.60 per hour Direct manufacturing labor The following data were compiled regarding actual performance: actual output units (chairs) produced, 2,400; square yards of input purchased and used, 6,900; price per square yard, $6.10; direct manufacturing labor costs, $9,870; actual hours of input, 940; labor price per hour, $10.50. Read the requirements. 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. Actual cost Direct materials = Next we will calculate the actual input at the budgeted price. Actual input Budgeted price Cost Direct materials Direct manufacturing labor Determine the formula and calculate the costs for the flexible budget. Flexible budget cost Direct materials Direct manufacturing labor 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 in materials price per square yard due to competition. The materials efficiency variance: The production manager may have employed workers or the budgeted materials standards were set too The labor price variance: in labor rates due to a The labor efficiency variance: efficient workers being employed or the use of quality materials