50.1K

Verified Solution

Link Copied!

David James is a cost accountant and business analyst for Doorknob Design Company (DDC), which manufactures expensive brass doorknobs. DDC uses two direct cost categories: direct materials and direct manufacturing labour. James 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 2019, DDC budgeted annual production of 400,000 doorknobs and adopted the following standards for each doorknob:

Direct materials (brass)

0.3 lb. @ 10/lb.

3.00

Direct manufacturing labour

1.2 hours @ 20/hour

24.00

Manufacturing overhead:

Variable

6/lb. * 0.3 lb.

1.80

Fixed

15/lb. * 0.3 lb.

4.50

Standard cost per doorknob

33.30

Actual results for April 2019 were as follows:

Production

35,000 doorknobs

Direct materials purchased

12,000 lb. at 11/lb.

Direct materials used

10,450 lb.

Direct manufacturing labour

38,500 hours for 808,500

Variable manufacturing overhead

64,150

Fixed manufacturing overhead

152,000

Requirements for question 2:

a) For the month of April 2019, compute the following variances, indicating whether each is favourable (F) or Adverse (A):

1. Direct materials price variance (based on purchases).

2. Direct materials usage variance.

3. Direct manufacturing labour rate variance.

4. Direct manufacturing labour efficiency variance.

5. Variable manufacturing overhead expenditure variance.

6. Variable manufacturing overhead efficiency variance.

7. Fixed manufacturing overhead expenditure variance.

Answer & Explanation Solved by verified expert

See Answer