Elsie’s Muffins makes two types of muffin that are sold to grocery stores: the standard muffin (which comes in various flavours such as carrot, chocolate chip, bran, and apple spice) and the gourmet muffin (which is injected with homemade jelly and topped with a nut crumble). The direct materials and labour used to make a package of 24 of both the standard and the deluxe brand muffins and their standard costs are shown in the following table:

Variable overhead is assigned to each package based on direct labour dollars at a rate of 40% of direct labour costs. The factory has total fixed overhead costs budgeted at \($50,000\) for the year, based on a total production volume of 50,000 packages of muffins per year.
During 2012, Elsie’s sold 54,000 packages of muffins: 42,000 standard and 12,000 deluxe. The company used 51,500 kg of baking mix; 1,325,000 paper cups; 3,800 kg of jelly and nut crumble; and 6,800 direct labour hours. Elsie’s spent a total of \($100,000\) on baking mix; \($7500\) on paper cups; \($22,500\) for jelly and nut crumble; and \($147,000\) on direct labour. For 2012, actual fixed overhead costs were \($48,500\) and variable overhead costs were $52,000.

a. Calculate the materials, labour, variable overhead, and fixed overhead variances.

b. Which variances need further investigation?

c. Provide a possible explanation for each significant variance.

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Baking mix Paper cups Jelly and nut crumble Direct labour Quantity 1 kg 24 Standard Muffins Cost $2 per kg $0.005 per cup Deluxe Muffin Quantity Cost 1.1 kg 24 $2 per kg $0.006 per cup n/a n/a 350 g $0.005 per gram 7 minutes $20 per hour 9 minutes $20 per hour