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 1,500 armchairs Direct materials purchased 19,000 board feet Direct materials issued into production 17,200 board feet Standard cost per unit (12 board feet × $8) $96 per unit produced Purchase price variance $2,850 unfavorable Required: Calculate the actual price paid per board foot purchased. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Calculate the standard quantity of materials allowed (in board feet) for the number of units produced. Calculate the direct materials usage variance. (Indicate the effect of each variance by selecting "F" for favorable, "U"
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.
Oakwood Inc. manufactures end tables, armchairs, and other wood furniture products from high-quality materials. The company uses a
| Units produced | 1,500 | armchairs |
| Direct materials purchased | 19,000 | board feet |
| Direct materials issued into production | 17,200 | board feet |
| Standard cost per unit (12 board feet × $8) | $96 | per unit produced |
| Purchase price variance | $2,850 | unfavorable |
Required:
- Calculate the actual price paid per board foot purchased. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
- Calculate the standard quantity of materials allowed (in board feet) for the number of units produced.
- 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).)
- The purchasing manager may have purchased higher-than-standard quality raw material inputs is the most likely explanation for the price and usage variances.
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