Stephen Ltd is engaged in aerial spraying of vegetables. Operating costs are difficult to control, so standard costs and standard cost variances are reported. The following standards were developed for the ‘maxiprotect’ spraying service. This is one of the company’s major products.

During May, Stephen purchased 160 000 kilograms of insecticide at a total cost of $608 000. The total wages for May were $10 000, 40 per cent of which was direct labour cost of the maxiprotect sprays. Stephen completed 40 maxiprotect sprays during May, using 400 kilograms of insecticide and 90 direct labour hours.

Required:

1. Construct an Excel spreadsheet to calculate the following variances for May, and indicate whether each is favourable or unfavourable:

(a) direct material price variance

(b) direct material quantity variance

(c) direct labour rate variance

(d) direct labour efficiency variance.

2. Use your spreadsheet to show how the solution will change if the following information changes:

(a) standard direct labour rate increases to $50 per hour

(b) standard direct material quantity decreases to 7 kilograms.

Transcribed Image Text:

Standard price Standard quantity Direct material (insecticide) 8 kilograms $3.50 per kilog Direct labour 2 hours $40 per hour Total