Hercules Ltd produces a line of sports equipment and uses a standard cost system for control purposes. Last year the company produced 8,000 Skateboards. The standard costs associated with this Skateboards, along with the actual costs incurred last year, are given below (per Skateboard) Standard Cost Actual Cost Direct materials: $37 $38.40 Direct labour: 13.5 12.80 Variable manufacturing overhead: 4.50 4.40 Total cost per Skateboard . . . . . . . . . . . . . . . . . . . . $55.00 $55.60 The CEO was elated when he saw that actual costs exceeded standard costs by only $0.60 per Skateboard. He stated, "l was afraid that our unit cost might get out of hand when we gave out those raises last year in order to stimulate output. But it's obvious our costs are well under control." There was no inventory of materials on hand to start the year. During the year, 32,000 metres of materials were purchased and used in production Required: (a) For direct materials compute the price and quantity variances for the year. (2 Marks) (b) For direct labour compute the rate and efficiency variances. (2 Marks) (c) Compute the variable overhead spending and efficiency variances. (2 Marks) (d) Why is the statement of the CEO that "our costs are well under control" not correct? Explain. (3 Marks) (e) Distinguish between perfection standards and practical standards. Which type of standard is likely to produce the best motivational effects