Question
Batu Ltd operates in Windhoek, manufacturing sandals. The company uses a standard costing system, with a plan to produce 10,000 pairs of sandals each month
Batu Ltd operates in Windhoek, manufacturing sandals. The company uses a standard costing system, with a plan to produce 10,000 pairs of sandals each month this year. The following standard costs apply:
Account
Amount per pair
N$
Selling Price per unit
60
Leather (200 MM)
6
Labour (0.5 hours)
15
Variable overheads (Based on materials)
5
The company also budgets for fixed overheads of N$50,000 per month, absorbed by labour hours.
The following are the companys actual results for May 2021:
Number of pairs manufactured
10,000
N$
Leather Purchased (2,500 metres)
80,000
Direct Labour (4,850 hours)
94,575
Variable overheads
45,000
Fixed overheads
46,000
Additional Information
1. There was no inventory at the beginning of the month.
2. An analysis of the production records shows that only 2,050 meters of Leather were issued to production.
3. Batu Ltd uses the absorption costing method to present their financial information.
4. The company recorded sales of all 10,000 units, at a total of N$650,000
Required: Calculate the labour price variance
Indicate with an A if variance is Adverse or with an F if variance is Favourable
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