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Arcana Ltd produces a single product. Manufacturing overhead is applied to products on the basis of production volume. The standard variable cost is as follows:
Arcana Ltdproduces a single product. Manufacturing overhead is applied to products on the basis of production volume. The standard variable cost is as follows:
Direct material: 8 kgs at $1.50 per kg | $ 12.00 |
Direct labour: 0.5 hours at $28 per hour | $ 14.00 |
Variable manufacturing overhead: $5.60 per unit | $ 5.60 |
Total standard variable cost per unit | $ 31.60 |
Annual budgeted fixed overhead is $144,000 and is assumed to be incurred evenly throughout the year.Arcana Ltdplans to produce 3,200 units in November.
During November, 3,400 units were produced. The costs and other information associated with November's operations were as follows:
Material purchased: 28,000 kgs at $1.50 per kg | $ 42,000 |
Material used in production (kgs) | 26,000 |
Direct labour: 1,600 hours at $30.00 per hour | $ 48,000 |
Variable manufacturing overhead costs incurred | $ 20,000 |
Fixed manufacturing overhead costs incurred | $ 11,500 |
Required:
- Calculate the following variances for November, indicating whether each is favourable or unfavourable.
- Direct material price variance and quantity variance.
- Direct labour rate variance and efficiency variance.
- Variable overhead spending variance and efficiency variance.
2. Prepare the journal entry to record the use of direct materials in production.
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