Greenie Bags Inc (GB) has been a manufacturer of reusable shopping bags for many years. It focuses on good quality and environmentally friendly bags. With an increasingly competitive market, management has been trying to manage costs whilst maintaining the same market share. Five years ago, management decided to increase factory automation in order to reduce its wage costs and improve factory efficiency. The standard (budgeted) amounts of inputs required and costs of inputs for one bag are as follows. Direct materials (20 grams per bag) $ 0.20 Direct labour (O.1 hours per bag) $2.00 Variable manufacturing overhead (allocated based on direct labour hours) $3.00 Fixed manufacturing overhead (allocated based on direct labour hours) $ 0.02 STANDARD COST PER BAG $5.22 At the start of the previous year, GB had expected 50,000 bags to be produced during the same year. Actual data for the previous year with regards to the above product reveal the following: 1. Due to greater than expected demand, 60,000 bags were produced (and sold). 2. $21,000 of direct materials were purchased representing 1,400,000 grams of direct materials 3. 1,150,000 grams of direct materials were used in the production of the bags. 4. Direct labour was $110,000 for 5,200 direct labour hours 5. Actual variable manufacturing overhead totaled $150,000 Which of the following most closely reflects the direct material efficiency (or quantity) variance for the previous year for GB? $1,500 Unfavourable $10,000 Unfavourable $2,000 Unfavourable $10,000 Favourable $500 Favourable Which of the following most closely reflects the variable manufacturing overhead efficiency variance for the previous year for GB? $23,000 Unfavourable $24,000 Favourable $23,000 Favourable $24,000 Unfavourable $2,400 Favourable Which of the following statements is/are likely to be true with regards to the impact of management's decision to replace workers with machines five years ago on GB's variances (holding all other factors constant) in the current year? 1. The decision to replace workers with machines would likely lead to a significant favourable direct labour efficiency (or quantity) variance in the current year. 2. The decision to replace workers with machines would likely lead to a significant unfavourable fixed manufacturing overhead budget variance in the current year. 3. The decision to replace workers with machines would likely lead to a significant unfavourable direct materials efficiency (or quantity) variance in the current year. Statement 1 only Statement 2 only Statement 1 and 2 only Statement 1, 2 and 3 None of the above
