Question

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

Answer 1

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Part 1 a and b
		Actual Cost	Actual Input*Budgeted Price		Flexible
		Incurred	Purchases	Usage	Budget	Working
Direct Material		12,200*$12	12,200*$10	9,000*$10	9,600*$10	32,000*0.3 Hours=9,600 Hours
		$         146,400	$                                                  122,000	$               90,000	$        96,000
		24400.00		6000.00
		Unfavorable		Favorable
		Price Variance		Efficiency Variance
Part 1 c and d
		Actual Cost	Actual Input*Budgeted Price	Flexible
		Incurred		Budget		Working
Direct Labor			29,500*$18	38,400*$18		32,000*1.2 Hours=38,400 Hours
		$         649,000	$                                                  531,000	$             691,200
		118000.00		160200.00
		Unfavorable		Favorable
		Price Variance		Efficiency Variance
Part 1 e and f		Actual Cost	Actual Input*Budgeted Price	Flexible	Allocated
		Incurred		Budget
Variable Manufacturing overhead			9,000*$4	9,600*$4	9,600*$4
		$           64,400	$                                                    36,000	$               38,400	$        38,400
Spending Variance		28400.00
		Unfavorable
Effciency Variance			2400.00
			Favorable
Part 1 g and h		Actual Cost	Actual Input*Budgeted Price	Flexible	Allocated
		Incurred		Budget
Variable Manufacturing overhead					9,600*$14
		$         152,000	$                                                  140,000	$             140,000	$     134,400
Spending Variance		12000.00
		Unfavorable
Production Volume				5600.00
				Unfavorable
Annual Pound of Material			400,000 Pound*0.3	120,000	Pounds
Annual Budgeted Fixed Overhead			120,000*$14	$         1,680,000
Monthly Overhead			$1,680,000/12	$             140,000
Part 2
Direct material price variance shows that company have paid more than planned for brass.
It can be explained as purchase of higher quality of brass as it is giving Direct material efficiency variance as favorable.
Which in turn impacting variable overhead efficiency variance which is also favorable.
Unfavorable direct labor price variance can be seen as more skilled/experienced workers were hired, which in turn
can be explained by direct labor efficiency variance which is favorable