Intermediate: Labour and material variances Shown below 1s the standard pnme cost of a tube of industrial adhesive, which is the only product manufactured in one department of Gum pic.

The standard material allowance for each tube of adhesive is 2 lb of powder, If• litre of chemical and one tube. The standard wage rate for mixing and pouring is £4.50 per hour.
During the previous month 4500 tubes of adhesive were produced. there were no work in progress stocks at the beginning or end of the month, and the receipts and issues of materials during the month are shown below:

The above materials are used exclusively in the production of the adhesive and it is the policy of the company to calculate any price variance when the materials are purchased.
The direct empolyees operating the mixing and pouring plant worked a total of 2050 hours during the previous month and earned gross wages of £891 0.
Required:

(a) Calculate for the previous month the following variances from standard cost Materials price variance, analysed as you consider appropriate.
Materials usage variance, analysed as you consider appropriate.
Direct labour efficiency variance.
Direct wages rate variance. (12 marks)

(b) Discuss the possible causes of the material variances and the direct labour efficiency variance

Transcribed Image Text:

Industrial adhesive ( per tube) ( per tube) Materials: Powder 1.50 Chemical 0.60 Tube 0.30 2.40 Labour - Mixing and Pouring 1.80 Total standard prime cost 4.20