leep Co manufactures and sells handmade wooden beds to major retailers in the country of Westland.

The standard cost for a wooden bed is as follows:

Input

Wood 15 metres @ $20 per metre Other materials

Labour 5 hours @ $28 per hour

Overheads

Total cost

Cost

$300

$20

$140

$80

$540

It was budgeted that 15,700 beds would be produced in June, but actual production was lower due to a workers strike over pay and so only 12,500 beds were actually produced taking 65,625 labour hours.

The actual cost of the wood in June was $20.80 per metre and 193,750 metres were used to make the beds wit

no changes to the inventory of either raw materials or finished beds.

The world commodity prices for wood increased by 15% in the month of June. At the beginning of the month, t Westland safety authority brought in new legislation meaning that the design of the bed had to change as a re each bed required 10% more wood than previously. It also resulted in workers having to adapt to the new designs.

As a result of pressure from the workers union the rate of pay was increased to $30 per hour from the start of June. The actual Labour cost in June was $2,050,000.

Q31(a). Calculate the following variances for the month of June:

(i). Material price planning and operational variances

(4 marks)

(ii). Material usage planning and operational variances

(4 marks)

(iii). Labour rate planning and operational variances

(4 marks)

Q31(b). Explain the purpose of planning and operational variances and give an example from your calculations that demonstrates why they are useful for control purposes at ZeeSleep

(3 marks)

Given the high value of planning variances it has been decided to review the way in which standards are set within the organisation. The production director Gavin Thorpe has recently read they are different approaches that can be taken to setting standards: basic, current. attainable. and ideal.

(iii). Labour rate planning and operational variances

(4 marks)

Q31(b). Explain the purpose of planning and operational variances and give an example from your calculations that demonstrates why they are useful for control purposes at ZeeSleep

(3 marks)

Given the high value of planning variances it has been decided to review the way in which standards are set

within the organisation. The production director Gavin Thorpe has recently read they are different approaches that

can be taken to setting standards: basic, current, attainable, and ideal.

Q31(c). Explain each of the types of standard that Gavin has identified and recommend the approach to standard setting that ZeeSleep should use if it wants to improve profitability and motivate its staff