MATERIALS AND MANUFACTURING LABOR VARIANCES, STANDARD COSTS

Dunn, Inc., is a privately held furniture manufacturer. For August 2014, Dunn had the following standards for one of its products, a wicker chair:

Standards per Chair

Direct materials  2 square yards of input at $5 per square yard

Direct manufacturing labor  0.5 hour of input at $10 per hour

The following data were compiled regarding actual performance: actual output units (chairs) produced, 2,000; square yards of input purchased and used, 3,700; price per square yard, $5.10; direct manufacturing labor costs, $8,820; actual hours of input, 900; labor price per hour, $9.80.

REQUIREMENTS:

1. Show computations of price and efficiency variances for direct materials and direct manufacturing labor. Give a plausible explanation of why each variance occurred.

2. Suppose 6,000 square yards of materials were purchased (at $5.10 per square yard), even though only 3,700 square yards were used. Suppose further that variances are identified at their most timely control point; accordingly, direct materials price variances are isolated and traced at the time of purchase to the purchasing department rather than to the production department. Compute the price and efficiency variances under this approach.

3. Prepare journal entries and post them to T- accounts for all transactions including requirement 2.