Reference no: EM132611242

Ali Corporation started in January 2014 manufactures Hawaiian muumuus. At that time the following material and labor standards were developed: Material 3.0 yards at Rs. 4 per yard

Labor 1.5 hours at Rs. 6 per hour

In January 2019 Ali Corp. hired a new cost accountant, Amjad. At the end of the month, Amjad was reviewing the production variances and was amazed to find that the company's material and labor standards had never been revised.

Actual material and labor data for January, when 17,200 muumuus were produced, follow.

Material Purchased 50,000 yards at Rs. 4.90

Used 50,000 yards

Labor 17,800 hours at Rs. 9.05 per hour

• Material prices have risen 4 percent each year beginning in 2014 (six years through 2019), but the company can now buy at 95 percent of regular price due to increased purchase volume. Also, direct material waste has been reduced from 1/4 yard to 1/8 yard per muumuu; waste has always been included in the standard material quantity. Beginning in 2014, each annual labor contract has specified a 7 percent cost-of-living adjustment. Revision of the plant layout and acquisition of more efficient machinery has decreased the labor time per muumuu by one-third since the company began.

Required:

Question a. Determine the material and labor variances based on the company's original standards.

Question b. Determine the new standards against which Amjad should measure the January 2020 results.(Round adjustments annually to the nearest paisa)

Question c. Compute the variances for material and labor using the revised standards.