David James is a cost accountant and business analyst for
David James 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 labour. James feels that manufacturing overhead is most closely related to material usage. Therefore, DDC allocates manufacturing overhead to production based upon kilograms of materials used.
At the beginning of 2013, DDC budgeted production of 100,000 doorknobs and adopted the following standards for each doorknob:
1. For the month of April, compute the following variances, indicating whether each is favourable (F) or unfavourable (U).
a. Direct materials price variance (based on purchases).
b. Direct materials efficiency variance.
c. Direct manufacturing labour price variance.
d. Direct manufacturing labour efficiency variance.
e. Variable manufacturing overhead rate variance.
f. Variable manufacturing overhead efficiency variance.
g. Production-volume variance.
h. Fixed manufacturing overhead rate variance.
2. Can James use any of the variances to help explain any of the other variances? Give examples.
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