Question

Gunlock Chair Co. is an elite manufacturer of mid-century modern solid oak chairs. At the start of May, the following budgeted unit amounts related to its manufacture of these exclusive oak chairs:

• Direct materials: 8 square feet of oak per chair @ $35 per square foot
• Direct manufacturing labor: 3 hours per chair @ $40 per labor hour

Budgeted production for May was 1700 mid-century style chairs. There were no beginning inventories of direct materials or finished goods on May 1. Actual results for May are as follows:

• Direct materials purchased: 13,850 square feet for $493,060
• Direct materials used: 13,630 square feet
• Direct manufacturing labor: 5,425 hours at $42.00 per hour

Actual production in May is 1750 chairs.

Questions:

1. Compute the DM Purchase Price & Quantity variances for May

2. Compute the DL Rate and Efficiency variances for May

Answer 1

1. DM Purchase Price variances = (Standard rate - Actual rate)*Actual quantity purchased

= ($35 - $493,060/13850)*13850 = $8310 Unfavorable

DM Purchase Quantity variances = (Standard quantity - Actual quantity used)* Standard Rate

= (1750*8 - 13630)*35 = $12950 Favorable

2. DL Rate variances = (Standard rate - Actual rate)*Actual hours

= ($40 - $42)*5425 = $10,850 Unfavorable

DL Efficiency variances = (Standard hours - Actual hours)*Standard rate

= (1750*3 - 5425)*40 = $7000 Unfavorable