Global Brand Ltd. is a small clothing company operating in the north of Bedfordshire. You have recently joined them as the trainee management accountant, after successfully completing your BA (Hons) in Accounting.

One particular garment has a standard material cost of 13.50, comprising 3 metres of cloth at 4.50 per metre. The standard labour time allowed for making up the garment is 15 minutes, and employees are paid at a rate of 5 per hour. For the month of August 2019, the company was able to produce 10,000 garments. The budgeted output level was 9,000 garments.

The purchasing manager was very pleased as he had managed to buy 45,000 metres of cloth for 4.25 per metre. However, the production manager was not so pleased because he claims the cloth was of poor quality which resulted in operational inefficiency.

Actual data for August is as follows:

Wages paid 12,740

Hours worked 2,600 hours

Cloth issued 32,000 meters

Required:

Calculate for August 2019:

i material usage variance;

ii material price variance;

iii labour efficiency variance;

iv labour rate variance;

(12 Marks)

Comment on the points of view of both the Purchasing Manager and the Production Manager. Do you think the Purchasing Manager was correct to buy cloth at 4.25 if it was responcible for operational problems?