Question

Dunn, Inc. is a privately held furniture manufacturer. For August 2017, Dunn had the following standards for one of its products, a wicker chair: B (Click the icon to view the standards per chair.) The following data were compiled regarding actual performance: actual output units (chairs) produced, 2,000; square yards of input purchased and used, 5,700; price per square yard, $5.30; direct manufacturing labor costs, $9,801; actual hours of input, 990; labor price per hour, $9.90. 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 xx Direct materials

Answer 1

Dunn Inc.
	Actual Cost of Direct Material=AQ*AP=5700*$5.30	$ 30,210.00
Ans 1)	Material Price Variance=AQ*AP-AQ*SP
	AQ=	5700
	AP=	$            5.30
	SP=	$            5.10
	Material Price Variance=5700*($5.30-$5.10)	$   1,140.00	(U)
	Material Efficiency Variance=AQ*SP-SQ*SP
	AQ=	5700
	SQ=(Actual Units Produced*Standard quantity required per unit)=2000*3	6000
	SP=	$            5.10
	Material Efficiency Variance=$5.10*(5700-6000)	$ -1,530.00	(F)
	Flexible Budget Variance=Material Price+Material Efficiency Variance=$1140(U)+$1530(F)	$     -390.00	(F)
	Reasons for Unfavorable Price Variance
1)	Unexpected Increase in Price of Material.
2)	Purchase manger is not very skillful.
	Reasons of Favorable Efficiency Variance
1)	High Quality of Material being used.
2)	Skilled labors used less material than budgeted.
	Direct Labor Rate Variance=AH*AR-AH*SR
	AH=	990
	AR=	$            9.90
	SR=	$         10.10
	Direct Labor Rate Variance=990*(9.9-10.10)	$     -198.00	(F)
	Direct Labor Efficiency Variance=AH*SR-SH*SR
	Ah=	990
	SR=	$         10.10
	SH=Actual units produced*Standard Hours required per unit=(2000*.50)	1000
	Direct Labor Efficiency Variance=$10.10*(990-1000)	$     -101.00	(F)
	Flexible Budget Variance=Direct Labor Rate Variance+Direct Labor Efficiency Variance
	Flexible Budget Variance=198(F)+101(F)	$     -299.00	(F)
	Reasons: Favorable rate Variance
1)	Appointment of more unskilled or semi skilled workers.
2)	Reduction in labor rate due to recession.
	Reasons of Favorable Efficiency Variance
1)	Used of higher quality of materials.
2)	Restructuring plant facility results labor would be more productive.
2)	Material Price Variance when control point is purchasing
	Actual Cost of material when Control point is purchasing
	AQ*AP=8200*$5.30	$ 43,460.00
	Material Price Variance=AQ*AP-AQ*SP
	AQ=	8200
	AP=	$            5.30
	AQ=	8200
	SP=	$            5.10
	Material price Variance=8200*($5.30-$5.10)	$   1,640.00	(U)
	Material Efficiency Variance=AQ*SP-SQ*SP
	AQ=	5700
	SQ=(2000*3)	6000
	SP=	$            5.10
	Material Efficiency Variance=$5.10*(5700-6000)	$ -1,530.00	(F)
	Flexible Budget Variance=Material Price+Material Efficiency Variance=$1640(U)+$1530(F)	$       110.00	(U)
	Direct Labor Variance is same as (1) above
	AQ=Actual Quantity,SQ=Standard Quantity,AP=Actual Price,SP=Standard Price