Eric Williams is a cost accountant and business analyst for Diamond Design Company (DDC), which manufactures expensive brass doorknobs. DDC uses two direct-cost categories: direct materials and direct manufacturing labor. Williams 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 2017, DDC budgeted annual production of 420,000 doorknobs and adopted the fol- lowing standards for each doorknob: Input 0.3 lb. @ $10/lb. 1.2 hours @$17/hour Cost/Doorknob Direct materials (brass) $ 3.00 Direct manufacturing labor Manufacturing overhead: 20.40 $5/lb. x 0.3 lb. $15/lb. x 0.3 Ib. Variable 1.50 Fixed 4.50 Standard cost per doorknob $29.40 Actual results for April 2017 were as follows: Production Direct materials purchased Direct materials used Direct manufacturing labor Variable manufacturing overhead Fixed manufacturing overhead 29,000 doorknobs 12,400 lb. at $11/lb. 8,500 lbs. 29,200 hours for $671,600 $ 65,100 $158,000
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
For the month of April, compute the variances, indicating whether it is favorable (F) or unfavorable (U):
Q. Direct manufacturing labor efficiency variance ?
![Eric Williams is a cost accountant and
business analyst for Diamond Design Company (DDC), which manufactures expensive brass doorknobs.
DDC uses two direct-cost categories: direct materials and direct manufacturing labor. Williams 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 2017, DDC budgeted annual production of 420,000 doorknobs and adopted the fol-
lowing standards for each doorknob:
Input
0.3 lb. @ $10/lb.
1.2 hours @$17/hour
Cost/Doorknob
Direct materials (brass)
$ 3.00
Direct manufacturing labor
Manufacturing overhead:
20.40
$5/lb. x 0.3 lb.
$15/lb. x 0.3 Ib.
Variable
1.50
Fixed
4.50
Standard cost per doorknob
$29.40](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1cd5789a-7652-47af-84c5-de9d7e3b29db%2F6519bc21-e28b-47f9-ab70-8a872980b5ef%2Fern5iy.jpeg&w=3840&q=75)
![Actual results for April 2017 were as follows:
Production
Direct materials purchased
Direct materials used
Direct manufacturing labor
Variable manufacturing overhead
Fixed manufacturing overhead
29,000 doorknobs
12,400 lb. at $11/lb.
8,500 lbs.
29,200 hours for $671,600
$ 65,100
$158,000](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1cd5789a-7652-47af-84c5-de9d7e3b29db%2F6519bc21-e28b-47f9-ab70-8a872980b5ef%2Fuoxqcv.jpeg&w=3840&q=75)
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