Oakwood Inc. manufactures end tables, armchairs, and other wood furniture products from high-quality materials. The company uses a standard costing system and isolates variances as soon as possible. The purchasing manager is responsible for controlling direct material price variances, and production managers are responsible for controlling usage variances. During November, the following results were reported for the production of American Oak armchairs: Units produced Direct materials purchased Direct materials issued into production Standard cost per unit (22 board feet x $8) Purchase price variance 1,660 armchairs 18,600 board feet 17,050 board feet $176 per unit produced $2,960 unfavorable Required: a. Calculate the actual price paid per board foot purchased. (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. Calculate the standard quantity of materials allowed (in board feet) for the number of units produced. c. Calculate the direct materials usage variance. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).) d. The purchasing manager may have purchased higher-than-standard quality raw material inputs is the most likely explanation for the price and usage variances.
Oakwood Inc. manufactures end tables, armchairs, and other wood furniture products from high-quality materials. The company uses a standard costing system and isolates variances as soon as possible. The purchasing manager is responsible for controlling direct material price variances, and production managers are responsible for controlling usage variances. During November, the following results were reported for the production of American Oak armchairs: Units produced Direct materials purchased Direct materials issued into production Standard cost per unit (22 board feet x $8) Purchase price variance 1,660 armchairs 18,600 board feet 17,050 board feet $176 per unit produced $2,960 unfavorable Required: a. Calculate the actual price paid per board foot purchased. (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. Calculate the standard quantity of materials allowed (in board feet) for the number of units produced. c. Calculate the direct materials usage variance. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).) d. The purchasing manager may have purchased higher-than-standard quality raw material inputs is the most likely explanation for the price and usage variances.
Chapter1: Financial Statements And Business Decisions
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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.
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Transcribed Image Text:### Oakwood Inc. Manufacturing Cost Analysis
Oakwood Inc. manufactures end tables, armchairs, and other wood furniture products from high-quality materials. The company uses a standard costing system and isolates variances as soon as possible. The purchasing manager is responsible for controlling direct material price variances, and production managers are responsible for controlling usage variances. During November, the following results were reported for the production of American Oak armchairs:
- **Units produced**: 1,660 armchairs
- **Direct materials purchased**: 18,600 board feet
- **Direct materials issued into production**: 17,050 board feet
- **Standard cost per unit (22 board feet × \$8)**: \$176 per unit produced
- **Purchase price variance**: \$2,960 unfavorable
#### Required:
a. Calculate the actual price paid per board foot purchased. (**Do not round intermediate calculations. Round your answer to 2 decimal places.**)
b. Calculate the standard quantity of materials allowed (in board feet) for the number of units produced.
c. Calculate the direct materials usage variance. (**Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).**)
d. The purchasing manager may have purchased higher-than-standard quality raw material inputs is the most likely explanation for the price and usage variances.
#### Analysis Table:
| Requirement | Calculation | Result |
|-------------|-------------------------------------------------------------------------|------------------------|
| a. Actual price | \(\frac{\text{Total cost of direct materials purchased}}{\text{Quantity purchased}}\) | \$8.42 per board foot |
| b. Standard quantity of materials allowed | \( 1,660 \text{ units} \times 22 \text{ board feet/unit} \) | 36,520 board feet |
| c. Direct material usage variance | \((\text{Standard quantity allowed} - \text{Actual quantity used}) \times \text{Standard cost/board foot}\) | \$155,760 F (Favorable) |
| d. Explanation | The purchasing manager may have purchased higher-than-standard quality raw material inputs. | True |
In detail:
- **Actual price calculation (a.)**:
Considering the price variance, we calculate the actual price per unit by taking into account the standard cost and the purchase price
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