Reference no: EM132791192

Precision Wood Products produces quality wooden desks. The company uses a standard cost system and has set the following standards for materials and labour:

Oak (6.5 kilograms @ $7.90)          $51.35

Direct labour (3.75 hr @ $32)       $120.00

Total prime cost                          $171.35

During the year, Precision produced 22,000 desks. Actual oak purchased was 142,750 kilograms at $8.40 per kilogram. There were no beginning or ending inventories of oak. Actual direct labour was 83,200 hours at $31.50 per hour.

Required:

Problem 1: Compute the actual cost of oak for the production of 22,000 desks.

Problem 2: Compute the cost of oak that should be incurred for the production of 15,000 desks.

Problem 3: Calculate the total material variance, the material price variance and the material usage variance and label as either "favourable" or "unfavourable".

Problem 4: Which variance would you likely investigate and whom would you interview for explanations (i.e. Purchasing Manager or Production Manager).