Problem
Mark Ludwig, LLC manufactures drum sticks. During July 2017 the company produced 50,000 matched pairs of hickory drum sticks. The following information was available for the month. All material purchased in July was used in July production.
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Standard per Pair of Drum Sticks
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Actual
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Direct materials (hickory)
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0.5 board feet @ $3.00 per board foot
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$70,000 for 28,000 board feet
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Direct labor
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1.5 hours @ $10.00 per hour
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$765,000 for 85,000 hours
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Variable manufacturing overhead
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1.5 hours @ $4.00 per direct labor hour
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$325,000
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Fixed manufacturing overhead
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$112,500 for budgeted volume of 60,000 pairs of drum sticks and 90,000 hours, or $1.25 per hour
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$125,000
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Required
Calculate the direct materials price variance for July. Label the variance as favorable or unfavorable.
Calculate the direct materials quantity variance for July. Label the variance as favorable or unfavorable.
Calculate the direct labor rate variance for July. Label the variance as favorable or unfavorable.
Calculate the direct labor efficiency variance for July. Label the variance as favorable or unfavorable.
Calculate the variable overhead spending variance for July. Label the variance as favorable or unfavorable.
Calculate the variable overhead efficiency variance for July. Label the variance as favorable or unfavorable.
Calculate the fixed overhead spending variance for July. Label the variance as favorable or unfavorable.
Calculate the overhead production volume variance for July. Label the variance as favorable or unfavorable.
The company found hickory at a much lower cost for use in July production. Discuss the likely impact of this decision on the variances that you calculated and make a recommendation to management of the company regarding the continuation of this practice in the future.