Question
DeSintok Plant of Northern Industries Sdn Bhd (NISB) manufactures a special transformer part. The plant measures production level in terms of direct labor hours (DLHs)
DeSintok Plant of Northern Industries Sdn Bhd (NISB) manufactures a special transformer part. The plant measures production level in terms of direct labor hours (DLHs) and uses a flexible budget system to plan and control departmental overhead costs. The following standard cost is developed for the special transformer.
Quantity
Price (RM)
Cost (RM)
Direct material:
Iron
5 sheets
2.00
10.00
Copper
3 spools
3.00
9.00
Direct labor
4 hours
7.00
28.00
Variable manufacturing overhead (VMOH)
4 hours
3.00
12.00
Fixed manufacturing overhead (FMOH)
4 hours
2.00
8.00
Total
67.00
Both manufacturing overhead rates were based on practical capacity of 4,000 DLHs per month. Variable overhead costs are expected to vary with the number of DLHs actually used. During October 2019, DeSintok Plant produces 800 transformers and the actual costs incurred are summarized below:
Direct materials:
Iron
Purchased 5,000 sheets at RM2/sheet and used 3,900 sheets
Copper
Purchased 2,200 spools at RM3.10/spool and used 2,600 spools
Direct labor
The first 2,000 hours @ RM7 and the following 1,400 hours @ RM7.20
VMOH
RM12,000
FMOH
RM8,800
REQUIRED:
(a)Calculate the following:
(i)Direct labour rate variance
(2 Marks)
(ii)Direct labour efficiency variance
(2 Marks)
(iii)Direct material price variance
(2 Marks)
(iv)Direct material usage variance
(2 Marks)
(v)VMOH spending variance
(2 Marks)
(vi)VMOH efficiency variance
(2 Marks)
(vii)FMOH spending variance
(2 Marks)
(viii)FMOH volume variance
(2 Marks)
(b)Explain briefly TWO (2) reasons and whose responsibility for EACH variance in (a) i and (iv) above.
(4 Marks)
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