Reference no: EM132655771
Whilst undertaking your recent analysis of costing at Victory Mowers you noticed some anomalies in the variance reporting on the standard costing system.
Budgeted costs for the 'Lawnmaster' mower for the previous month were as follows:
Standard Amount per output unit Standard Price per input unit
Direct Material (Pressed steel lineal metres) 50cm (per unit) $70 (per metre)
Direct Labour 2.5 hrs (per unit) $30 (per hr)
The firm produced 11,000 units during the last month and actual direct labour hours worked amounted to 28,200 hours at a cost to the firm of $851,000. Manufacturing of 11,000 mowers during the month consumed 6,500 linear metres of pressed steel which was purchased for $390,000.
Required:
For the Victory Mowers previous month of operations:
Question (a) Calculate (i) the Direct Material Price (Rate) variance, (ii) the Direct Material Quantity (Usage/Efficiency) variance, and (iii) the Total Direct Material variance
Question (b) Calculate (i) the Direct Labour Price (Rate) variance, (ii) the Direct Labour Efficiency variance, and (iii) the Total Direct Labour variance
Question (c) Describe how there may be a variance interaction (trade-off) effect when a favourable Direct Material Price variance is recorded at the same time as an unfavourable Direct Material Quantity (Usage) variance and an unfavourable Direct Labour Efficiency variance. How should such variances be investigated?
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