Cortless Company manufactures a new wireless modem, Datacom.

The standard cost specification sheet shows the following standards for one unit of Datacom:

3 kg of direct material @ $5 per kg

$15

5 hours of direct labour @ $15 per hour

$75

Fixed Overhead - $6 per direct labour hour

$30

Variable Overhead - $8 per direct labour hour

$40

160

Total

The fixed overhead allocation rate is based on normal monthly capacity of 40,000 direct labour hours. Fixed overhead and production are expected to be spread evenly throughout the year.

A total of 7,800 units were produced during January.

Actual costs incurred during January were:

25,000 kg of direct material were purchased @ $5.20 per kg

23,100 kg of direct material were sed.

40,100 direct labour hours were worked at an average wage rate of $14.6 per hour

Actual overhead costs incurred:

Fixed

$300,000

Variable

$300,000

Required:

(a)

Compute the following variances: (6 marks)

(i)

Direct material price variance

(ii)

Direct Materials price variance = (Actual Quantity Standard Price) - (Actual Quantity Actual Price)

Standard Price = $15 per kg

Actual Quantity = 23,100 Kgs

Actual Price = (25,000 /1043) = $14.66 per kg

(iii)

Direct material quantity variance

(iv)

Direct labour rate variance

(v)

Direct labour efficiency variance

(vi)

Variable overhead spending variance

(vii)

Fixed overhead budget variance

(b)

An organization has just recorded a favourable direct labour efficiency variance. Identify the factors that

could have caused this variance.(3 marks)