Question

Samantha Jones 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 labor. Jones feels that manufacturing overhead is most closely related to direct manufacturing labor hours. Therefore, DDC allocates manufacturing overhead to production based upon direct labor hours.

                       

At the beginning of 2018, DDC budgeted annual production of 400,000 doorknobs and adopted the following standards for each doorknob:

Input Cost/Doorknob                                                          

Direct materials (brass)           0.3 lb. @ 10/lb.                       $ 3.00

Direct manufacturing labor     1.2 hours @ $20/hour             24.00

Manufacturing overhead:

Variable                                   $1.50/hr. x 1.2 hours                   1.80

Fixed                                       $3.75/hr. x 1.2 hours                 4.50            

Standard cost per doorknob                                                   $ 33.30           

Actual results for April 2018 were as follows:

Production                                          35,000 doorknobs

Direct materials purchased                 12,000 lb. at $11/lb.

Direct materials used                          10,450 lb.

Direct manufacturing labor                 38,500 hours for $808,500

Variable manufacturing overhead      $64,150

Fixed manufacturing overhead           $152,000

Required:

a)      For the month of April, compute the following variances, indicating whether each is favorable (F) or unfavorable (U):

7.      Production-volume variance

8.      Fixed manufacturing overhead spending variance

b)      Discuss the possible explanation for the variances.

Answer 1