Question
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
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)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started