Intermediate: Calculation of labour, material and overhead variances The summary production budget of a factory with a single product for a four week period is as follows:

Variable overheads are absorbed at a predetermined direct labour hour rate. Fixed overheads are absorbed at a predetermined rate per unit of output.
During the four week period the actual produc¬ tion was 220 000 units which incurred the follow¬ ing costs:
Material: 313 060kg costing £1 245 980 Direct labour: 194920 hours costing £886 886 Variable overheads: £433 700 Fixed overheads: £1 501 240 Required:

(a) Calculate the cost variances for the period.
(12 marks)

(b) Give reasons in each case why the direct labour efficiency, variable overhead efficiency and fixed overhead volume variances may have arisen.

Transcribed Image Text:

Production quantity Production costs: Material: Direct labour: Variable overheads: Fixed overheads: 240 000 units 336000 kg at 4.10 per kg 216000 hours at 4.50 per hour 475 200 1 521 600