Question: ADDESSI CORPORATION REVISITED
ADDESSI CORPORATION manufactures a full line of chairs. ADDESSI uses a standard costing system to set attainable standards for direct materials, direct labor and overhead costs. ADDESSI reviews and revises standards annually. Department managers, whose evaluations and bonuses are affected by their department's performance, are held responsible to explain variances in their department reports.
Recently the manufacturing variances have caused some concern. For no apparent reason, unfavorable material variances and labor variances have occurred. At the monthly staff meeting, you are asked to explain the variances and suggest ways of improving performance.
The following information is available:
Actual Results Planning Budget Amounts
Units Sold 7,275 7,500
Revenues $596,550 $600,000
Direct materials and labor costs ??? $324,000
Fixed manufacturing costs* $108,398 $112,500
All manufacturing overhead cost is fixed; none is variable.
Gross margin ??? ???
Additional information below is available from the planning budget:
Direct material A: Planning budget cost of $49,500. The standard input for 2014 is 3 pounds per chair.
Direct material B: Planning budget cost of $139,500. The standard input for 2014 is 6 pounds per chair.
Direct labor: Planning budget cost of $135,000. The standard input for 2014 is 1.2 hours per chair.
The actual manufacturing costs for direct materials and direct labor are:
Direct material A: Actual cost of $55,872. The actual pounds for 2014 are 3.2 pounds per chair.
Direct material B: Actual cost of $150,738. The actual pounds for 2014 are 7 pounds per chair.
Direct labor: Actual cost of $145,355. The actual labor rate was $14.80 per hour.
Required: Compute material price variances for materials A and B.
Compute material quantity variance for materials A and B.
Compute the direct labor rate variance.
Compute the direct labor efficiency variance.
State possible causes for each of the variances you computed above. In addition, indicated to what extent one variance could affect another variance. Please do not simply say that the number is higher or lower. You know that from the computation.