Central Grid plc manufactures tungsten parts which pass through two processes, machining and polishing, before being transferred to finished goods. The management of the company have in operation a system of standard costing and budgetary control. The standard cost and budget information for April 2014 has been established by the management accountant as follows: Standard Cost and Budget Details for April 2014 Machining Polishing Standard cost per unit Direct material £5 - Direct labour rep £4.50 Budgeted output — units 16,000 16,000 (See Note below) Budgeted direct labour hours 48,000 24,000 Note: Output passes through both processes and there is no opening or closing work in progress. Additional information: 1 The actual production costs and details for April 2014 are as follows: (i) The output that passed through the two processes was 12,000 units and there was no opening or closing work in progress. (ii) Direct material used at standard prices was £64,150. (iii) Direct material used at actual prices was £60,390. (iv) The direct wages bill and the direct labour hours clocked for the machining department were: e Hours Machining department 153,000 34,000 2 Variances for the polishing department have been calculated and reveal the following: Labour efficiency variance £3,000 Adverse Labour rate variance Nil Required:

(a) Calculate the total direct materials variance and its analysis into: (i) direct materials usage variance (ii) direct materials price variance.

(b) Calculate the overall direct labour variance for the machining department and analyse this variance into: (i) direct labour efficiency variance (ii) direct labour rate variance.

(c) Identify the possible reasons for each of the variances calculated for the machining department in

(a) and

(b) above and also for the variances given for the polishing department.

(d) Discuss possible interrelationships between these variances. (AQA (Associated Examining Board): GCE A-level)