Reference no: EM132987815

Question - 'Tanked' have manufactured Fish Tanks for 20 years. Senior management and the Board of Directors have regularly undertaken product improvements to ensure the business has remained competitive and relevant. To assist with cost management and evaluation of manager performance, 'Tanked' review direct material and direct labour variances on a product-by-product basis each month.

During August 'Tanked' planned to produce 10,000 A250 Glass tanks. To produce each A250 Glass tank requires 6 metres of Glass, 5 direct labour hours and 1 indirect labour hour. Glass costs have been budgeted at $10 per metre and labour is to be paid at $25 per hour.

During August the glass cutting machine broke down and caused production delays and some glass was destroyed in the breakdown.

Due to these problems 'Tanked' produced 8,500 A250 Glass tanks, purchased 54,000 metres of glass at a cost of $555,600. A total of 55,000 metres of glass was used in August's production of A250 Glass tanks. August direct labour costs were $1,200,000 with 46,150 direct labour hours worked.

Required -

a. Calculate the two direct material and two direct labour variances for the month of August and indicate whether these variances are favourable or unfavourable.

b. Provide explanations for the board of management of reasons for each of these four variances calculated.