Reference no: EM132784609
Question - Chemco produces chemicals for cleaning pools. It sells the chemicals (a powder) in four kilogram buckets. The company's standard costs per unit follow:
Quantity Cost Total
Direct materials 5 kilograms $4.00 per kg $20.00
Direct labour 0.25 hours $10 per DL hour 2.50
Manufacturing overhead 0.25 hours $8 per DL hour 2.00
$24.50
During the month, the company produced 1,000 buckets of chemicals. The following information is known:
1. The company purchased 5,500 kilograms of direct material at a cost of $21,450.
2. The company had no beginning inventory, and had 700 kilograms of material on hand at the end of the year.
3. The direct labour workforce worked a total of 220 hours and was paid a total of $2,640.
4. Variable overhead of $1,050 and fixed overhead of $800 were incurred.
The manufacturing overhead rate of $8 per direct labour hour can be further broken down. The company estimates variable overhead to be $5 per direct labour hour. The company expected to produce 1,100 buckets using 275 direct-labour hours during the month, and based on those estimates, variable overhead was budgeted to be $1,375 for the month. Fixed overhead was budgeted to be $825 for the month.
Required -
a) Compute the Direct Materials price and quantity variances.
i. The company recently entered into a contract with a new supplier who is eager for their business. Should the company continue to work with this new supplier, or should they look for a new one.
b) Compute the Direct Labour rate and efficiency variances.
i. The company experimented using more senior staff and fewer junior employees this month. Was the experiment successful?
c) Compute the Variable Overhead spending and efficiency variances.
d) Compute the Fixed Overhead spending and volume variances.
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