Deluxe Linens makes high-end sheets which they sell to major retail stores and on their website. The budgeted costs for materials and direct labor per unit of finished product are $13 and $5, respectively. The production manager was pleased when she reviewed the following data:
Master Budget Actual Costs Variance
Direct materials $104,000 $96,900 $7,100 F
Direct labor 40,000 37,740 2,260 F
Prepare a report that provides a more detailed explanation of why the master budget was not achieved. Deluxe produced 6,800 units in the period.
Calculate the direct cost usage and price variances for material and labor.
Interpret the direct cost usage and price variances. Explain each one individually and as a collective.