How does variance analysis help in continuous improvement?
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List three causes of a favorable direct materials price variance.
Metal Shelf Company's standard cost for raw materials is \(\$ 4.00\) per pound and it is expected that each metal shelf uses two pounds of material. During 0ctober Year 2,25,000 pounds of materials are purchased from a new supplier for \(\$ 97,000\) and 13,000 shelves are produced using 27,000 pounds of materials. Which statement is a possible explanation concerning the direct materials variances? a. The production department had to use more materials since the quality of the materials was inferior. b. The purchasing manager paid more than expected for materials. c. Production workers were more efficient than anticipated. d. The overall materials variance is positive; no further analysis is necessary.
Dawson, Inc., is a privately held furniture manufacturer. For August 2017, Dawson had the following standards for one of its products, a wicker chair The following data were compiled regarding actual performance: actual output units (chairs) produced, 2,\(200 ;\) square yards of input purchased and used, 6,\(200 ;\) price per square yard, \(\$ 5.70 ;\) direct manufacturing labor costs, \(\$ 9,844 ;\) actual hours of input, \(920 ;\) labor price per hour, \(\$ 10.70\) 1\. Show computations of price and efficiency variances for direct materials and direct manufacturing labor. Give a plausible explanation of why each variance occurred. 2\. Suppose 8,700 square yards of materials were purchased (at \(\$ 5.70\) per square yard), even though only 6,200 square yards were used. Suppose further that variances are identified at their most timely control point; accordingly, direct materials price variances are isolated and traced at the time of purchase to the purchasing department rather than to the production department. Compute the price and efficiency variances under this approach.
Sunshine Foods manufactures pumpkin scones. For January 2017 it budgeted to purchase and use 14,750 pounds of pumpkin at \(\$ 0.92\) a pound. Actual purchases and usage for January 2017 were 16,000 pounds at \(\$ 0.85\) a pound. Sunshine budgeted for 59,000 pumpkin scones. Actual output was 59,200 pumpkin scones. 1\. Compute the flexible-budget variance. 2\. Compute the price and efficiency variances. 3\. Comment on the results for requirements 1 and 2 and provide a possible explanation for them.
When inputs are substitutable, how can the direct materials efficiency variance be decomposed further to obtain useful information?
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