D Limited currently makes and sells only one product, but a new additional product is contemplated for July. An extract from the standard cost of the existing product is given below, together with other relevant details for Period 3.

The company absorbs variable production costs on the basis of standard hours of production and operates its variance analysis on marginal costing principles.

Direct wages incurred were £47 500 for 10 000 hours worked.
Variable production overhead incurred: £28 500.
Required:

(a) calculate variances for material, labour and variable overhead which would be useful to management; (10 marks)

(b) identify to which of the variances calculated in

(a) above, the following statements refer and comment briefly whether the explanation could be acceptable:
(i) ‘Normally the buyer purchases at list price less 20% but because the quantity ordered was greater than usual, the price was list price less 25%.’
(ii) ‘The flow of work was much better following the appointment of an additional production supervisor.’
(iii) ‘Higher wage costs resulted in higher employer’s National Insurance contributions.’

(iv) ‘The wastage rate allowed for in the standard was exceeded.’
(v) ‘An expected increase of 10% over the previous year’s rate of pay had actually been 15%.’

Transcribed Image Text:

Direct material: Direct labour: Variable production overhead: 3 metres at 12 per metre 4 hours at 4.40 per hour 2.75 per direct labour hour