5. The newly appointed manager of production at Ahi Company is the major shareholders son, who has no business background at all. Year end has arrived, and you have been asked to assist the manager in the calculation and interpretation of production variances for the year.

The following is the standard cost information for Westridge Companys only products:

Direct materials, 2.5 kilograms at $8.00 $20.00

Direct labour, 1.5 hours at $12.00/hour $18.00

Variable overhead, 1.5 hours at $6.50/direct labour hour $ 9.75

Fixed overhead, 1.5 hours at $10.00 $15.00

Standard cost per unit $62.75

The company manufactured and sold 25,000 units of product during the year. A total of 64,000 kgs of material was purchased during the year at cost of $9.10 per metre. All of this material was used to manufacture the 25,000 units. The company records showed no beginning or ending inventories for the year.

The company worked 36,200 direct labour hours during the year at a cost of $13.00 per hour. Variable and fixed oerhead costs are each applied to products on the basis of direct labour hours. Actual fixed overhead costs incurred were $371,000. The budgeted fixed overhead rate was calculated based on expected production of 22,000 units. Actual variable overhead costs were $246,350.

Required: (total marks = 17)

3 a) Compute the direct materials price and quantity variances for the year.

3 b) Compute the direct labour rate and efficiency variances for the year.

3 c) Compute the variable overhead spending and efficiency variances for the year.

1 d) Compute the budgeted fixed overhead cost for the year.

3 d) Compute the fixed overhead budget and volume variances for the year.

2 e) Explain to the shareholders son what information is provided by each of the variable overhead variances.

2 f) What is the most likely single explanation that accounts for both of the labour variances? Was this a good choice?