South Wales Refractories Ltd., manufacturers of special bricks for the steel industry, use a standard cost system. The following information was extracted from the firm’s books for the month of March 19_4:

Required

(a) An explanation of the purpose of standard costing, including the factors which must be taken into account in setting standards.

(b) The standard and actual cost of production for the month of March.

(c) Calculate the following variances from standard:
(i) direct wage rate variances;
(ii) labour efficiency variances;
(iii) material price variances;
(iv) material usage variances.

(d) Comment on the material usage and material price variances calculated in (c), giving one possible reason for the variance in each case.

Transcribed Image Text:

Labour Direct Skilled' Labour Direct Unskilled Labour Materials Steel Chrome Ore Budget for March 400 hrs at 3.50 per hour 800 hrs at 2.50 per hour 50 tons at 90 per ton 120 tons at 150 per ton Actual Usage for March 420 hrs at 3.80 per hour 750 hrs at 2.60 per hour 55 tons at 85 per ton 130 tons at 160 per ton