# One explanation may be that peterson purchased lower

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One explanation may be that Peterson purchased lower quality pumpkins at a lower cost per pound. 7-6
7-22 Materials and manufacturing labor variances. Actual Costs Incurred (Actual Input Qty. × Actual Price) Actual Input Qty. × Budgeted Price Flexible Budget (Budgeted Input Qty. Allowed for Actual Output × Budgeted Price) Direct Materials \$200,000 \$214,000 \$225,000 \$14,000 F \$11,000 F Price variance Efficiency variance \$25,000 F Flexible-budget variance Direct \$90,000 \$86,000 \$80,000 Mfg. Labor \$4,000 U \$6,000 U Price variance Efficiency variance \$10,000 U Flexible-budget variance 7-7
7-23 Direct materials and direct manufacturing labor variances. 1. May 2013 Actual Results Price Variance Actual Quantity Budgeted Price Efficiency Variance Flexible Budget (1) (2) = (1)–(3) (3) (4) = (3) – (5) (5) Units 450 450 Direct materials \$13,338.00 \$1,710.00 U \$11,628.00 a \$918.00 U \$10,710.00 b Direct labor \$ 5,535.00 \$ 67.50 U \$ 5,467.50 c \$364.50 F \$5,832.00 d Total price variance \$1,777.50 U Total efficiency variance \$553.50 U a 6,840 meters × \$1.70 per meter = \$11,628 b 450 lots × 14 meters per lot × \$1.70 per meter = \$10,710 c 675 hours × \$8.10 per hour = \$5,467.50 d 450 lots × 1.6 hours per lot × \$8.10 per hour = \$5,832 Total flexible-budget variance for both inputs = \$1,777.50 U + \$553.50 U = \$2,331.00U Total flexible-budget cost of direct materials and direct labor = \$10,710 + \$5,832 = \$16,542 Total flexible-budget variance as % of total flexible-budget costs = \$2,331.00 ÷ \$16,542 = 14.09% 2. May 2014 Actual Results Price Variance Actual Quantity Budgeted Price Efficiency Variance Flexible Budget (1) (2) = (1) – (3) (3) (4) = (3) – (5) (5) Units 450 450 Direct materials \$12,400.92 a \$1,005.48 U \$11,395.44 b \$685.44 U \$10,710.00 c Direct manuf. labor \$ 5,424.30 d \$ 66.15 U \$ 5,358.15 e \$473.85 F \$5,832.00 c Total price variance \$1,071.63 U Total efficiency variance \$211.59 U a Actual dir. mat. cost, May 2014 = Actual dir. mat. cost, May 2013 × 0.98 × 0.95 = \$13,338 × 0.98 × 0.95 = \$12.400.92 Alternatively, actual dir. mat. cost, May 2014 = (Actual dir. mat. quantity used in May 2013 × 0.98) × (Actual dir. mat. price in May 2013 × 0.95) = (6,840 meters × 0.98) × (\$1.95/meter × 0.95) = 6,703.20 × \$1.852 = \$12,400.92 b (6,840 meters × 0.98) × \$1.70 per meter = \$11,395.44 c Unchanged from 2013. d Actual dir. labor cost, May 2014 = Actual dir. manuf. cost May 2013 × 0.98 = \$5,535.00 × 0.98 = \$5,424.30 Alternatively, actual dir. labor cost, May 2014 = (Actual dir. manuf. labor quantity used in May 2013 × 0.98) × Actual dir. labor price in 2013 = (675 hours × 0.98) × \$8.20 per hour = 661.50 hours × \$8.20 per hour = \$5,424.30 e (675 hours × 0.98) × \$8.10 per hour = \$5,358.15 7-8
Total flexible-budget variance for both inputs = \$1,071.63U + \$211.59U = \$1,283.22U Total flexible-budget cost of direct materials and direct labor = \$10,710 + \$5,832 = \$16,542 Total flexible-budget variance as % of total flexible-budget costs = \$1,283.22 \$16,542 = 7.76% 3. Efficiencies have improved in the direction indicated by the production manager—but, it is unclear whether they are a trend or a one-time occurrence. Also, overall, variances are still 7.8 percent of flexible input budget. SallyMay should continue to use the new material, especially in light of its superior quality and feel, but it may want to keep the following points in mind: The new material costs substantially more than the old (\$1.95 in 2013 and \$1.852 in 2014 versus \$1.70 per meter). Its price is unlikely to come down even more within the coming year. Standard material price should be reexamined and possibly changed. SallyMay should continue to work to reduce direct materials and direct manufacturing labor content. The reductions from May 2013 to May 2014 are a good development and should be encouraged. 7-9