Question

Accountant and ss doorknobs. illiams feels that es manufacturing 8-34 Flexible-budget variances, review of Chapters 7 and 8. Eric Williams is a cost accountar business analyst for Diamond Design Company (DDC), which manufactures expensive brass door DDC uses two direct-cost categories: direct materials and direct manufacturing labor. Williams fee manufacturing overhead is most closely related to material usage. Therefore, DDC allocates manufa 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 lowing standards for each doorknob: Input 0.3 lb. @ $10/lb. 1.2 hours @ $17/hour Cost/Doorknob $ 3.00 20.40 Direct materials (brass) Direct manufacturing labor Manufacturing overhead: Variable Fixed Standard cost per doorknob $5/lb. X 0.3 lb. $15/lb. X 0.3 lb. 1.50 4.50 $29.40

Answer 1

Solution:

Part 1

(a) Direct Materials Price Variance

Material Price Variance is the variance arises in the material cost due to difference in actual material purchase price from standard material price. Mathematically, it is calculated as below:

Material Price Variance = Actual Quantity (Standard Price – Actual Price)

Note --- Here actual quantity means actual quantity of material PURCHASED. If the question does not provide the information about material purchase, it is taken as equal to material consumed.

Direct Material Price Variance
Actual Price	$11.00	per lb
Standard Price	$10.00	per lb
Variance or Difference in Price	$1.00	per lb
x Actual Quantity PURCHASED	12,400	per lb
Direct Material Price Variance	$12,400	Unfavorable

(b) Material Quantity/Efficiency/Usage Variance

Material Efficiency (Usage) Variance measures variance in material cost due to usage/consumption of materials. It is calculated as below:

Material Quantity Variance = Standard Price (Standard Quantity for Actual Production – Actual Quantity USED)

Note --- Here actual quantity means actual quantity of material CONSUMED/USED

Direct Material Quantity/Efficiency/Usage Variance
Standard Quantity Allowed for actual production:
Actual Production/Activity	29000	doorknobs
x Allowed Standard Quantity Per Unit	0.3	lb
Total Standard Quantity Allowed for actual production (SQAP)	8,700	lb
Actual Quantity USED	8,500	lb
Variance or Difference in Quantity	200	lb
x Standard Price (SP)	$10.00	per pound
Material Quantity/Efficiency Variance	$2,000	Favorable

c) Labor Rate/Price Variance

Labor Price Variance – It arises due to difference in actual rate paid from standard rate. It is calculated as below:

Labor Price Variance = Actual Time (Standard Rate per hour – Actual Rate per hour)

Here, actual time means time for which wage has been paid.

Labor Rate Variance
Actual Hourly Rate ($671,600 / 29,200 hours)	$23.00	per hour
Standard Hourly Rate	$17.00	Per Hour
Variance or Difference in Rate	$6.00	Per Hour
x Actual Labor Hours worked	29200	Hours
Labor Rate Variance	$175,200	Unfavorable

(d) Labor Quantity Variance

Labor Efficiency Variance – It arises due to variation in the working hours from the set standard.

Labor Quantity / Efficiency Variance
Standard Hours Allowed for actual production:
Actual Production	29000	Doorknobs
x Allowed Standard Hours Per Unit	1.2	hours
Total Standard Hours Allowed for actual production (SHAP)	34,800	hours
Actual Labor Hours Worked	29,200	hours
Variance or Difference in Hours	5,600	hours
x Standard Hourly Rate (SHR)	$17	per hour
Labor Efficiency Variance	$95,200	Favorable

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