Reference no: EM133162601

Question - Martin Company manufactures and sells a chemical compound for industrial use. The following information was available at the beginning of 2017:

Standard selling price £1,170.00

Estimated production & sales (units) 2,025

Estimated direct materials (27 Kilograms at £10.00 per Kg.) £270.00

Estimated direct labour (20 hours at £7.00 per hour) £140.00

Estimated variable manufacturing overhead (15 hours at £5.00 per hour) £75.00

At the end of 2017, Martin Company established the following actual figures:

Production & sales 1,725 units sold for £1,210.00 per unit

Direct materials 63,000 Kg. at £9.00 per Kg.

Direct wages 45,000 hours at a total cost of £432,000

Variable manufacturing overhead 31,050 hours at a total cost of £230,000

Required -

a) Calculate the following variances and indicate whether the variances are adverse or favourable:

(i) Materials price (ii) Materials usage (iii) Labour rate (iv) Labour efficiency (v) Variable overhead rate (vi) Variable overhead efficiency

b) Discuss four possible causes for each of the following variances: (i) Materials usage (ii) Labour efficiency.

c) Explain how you would determine which variance to examine further in relation to a work performance.