Drasher, Inc. is a privately held furniture manufacturer. For August 2014 Drasher had the following standards for one of its products, a wicker chair:

Standards per Chair

Direct materials 2 square yards of input at $5.00 per square yard

Direct manufacturing labor 0.5 hour of input at $10.70 per hour

The following data were compiled regarding actual performance: actual output units (chairs) produced, 2,100; square yards of input purchased and used, 3,800 ; price per square yard, $5.20 ; direct manufacturing labor costs, $9,540 ; actual hours of input, 900 ; labor price per hour, $10.60.

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 6,100 square yards of materials were purchased (at$5.20 per square yard), even though only 3,800 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.

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 price	x	Actual input	=	Actual cost
Direct materials		x		=

Next we will calculate the actual input at the budgeted price.

	Actual input	x	Budgeted price	=	Cost
Direct materials		x		=
Direct manufacturing labor		x		=

Determine the formula and calculate the costs for the flexible budget.

	Budgeted input for actual output	x	Budgeted price	=	Flexible budget cost
Direct materials		x		=
Direct manufacturing labor		x		=

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.

Requirement 2.

Suppose 10,700 square yards of materials were purchased (at $5.70 per square yard), even though only 8,400 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.

Label each variance as favorable (F) or unfavorable (U).

Price Variance Efficiency Variance

Direct Materials

Answer rating: 100% (QA)

Requirement 1 Price and Efficiency Variances for Direct Materials and Direct Manufacturing Labor 1 D... View the full answer