ABC Ltd makes product MYX. Each unit requires 10 kg of material and one hour of labour. In January 2021, when the budget first prepared, the standard cost of the material was 5.00 per kg and standard labour cost per hour was 8.33. ABC Ltd had always purchased from one of the two major suppliers of the material at the same price. In February, staff received a 3% pay rise.

By March, one of the suppliers ceased operations and the other supplier increased the price of material by 10%. Unfortunately the existing supplier has also reduced the quality of their material which has now increased the weight of material needed by 5% and increased labour time by 10%.

ABC Ltd has just produced 2,000 units of product MYX, using 21,000 kg of material at a cost of 113,400 and 2,200 hours at a labour cost of 18,700.

a. What is the operational material price variance?

b. What is the planning material price variance?

c. What is the operational labour rate variance?

d. What is the planning labour rate variance?

e. Critically discuss the purpose of calculating planning and operational variances.