Eric Williams is a cost accountant and business analyst for Diamond Design Company (DDC), which manufactures expensive brass doorknobs. DDC uses two direct-cost categories: direct materials and direct manufacturing labor. Williams feels that manufacturing overhead is most closely related to material usage. Therefore, DDC allocates manufacturing overhead to production based upon pounds of materials used.

At the beginning of 2017, DDC budgeted annual production of 420,000 doorknobs and adopted the following standards for each doorknob:

Actual results for April 2017 were as follows:

Production ……………………………………..                  29,000 doorknobs

Direct materials purchased …………………….        12,400 lb. at $11/lb.

Direct materials used ………………………….              8,500 lbs.

Direct manufacturing labor ……………………        29,200 hours for $671,600

Variable manufacturing overhead ……………. $ 65,100

Fixed manufacturing overhead ………………..  $158,000

Required

1. For the month of April, compute the following variances, indicating whether each is favorable (F) or unfavorable (U):

a. Direct materials price variance (based on purchases)

b. Direct materials efficiency variance

c. Direct manufacturing labor price variance

d. Direct manufacturing labor efficiency variance

e. Variable manufacturing overhead spending variance

f. Variable manufacturing overhead efficiency variance

g. Production-volume variance

h. Fixed manufacturing overhead spending variance

2. Can Williams use any of the variances to help explain any of the other variances? Give examples.

Transcribed Image Text:

Direct materials (brass) Direct manufacturing labor Manufacturing overhead: Input 1.2 hours@S17/hour S5/lb. x 0.3 lb. S 3.00 20.40 Variable Fixed 1.50 4.50 S29.40 $15/b. x 0.3lb. Standard cost per doorknob