LO 10.5 10.6 10.7 10.8 P10.34 Analysing performance and responsibility; calculating variances: manufacturer Magic Plastics uses a standard costing system to assist in the evaluation of production operations. The company has had so many problems in recent months with suppliers and employees that they have hired a new production supervisor, Mark Harris. Mark has been working for the company now for five months and has brought the difficult situation under control. The director of manufacturing commented: "Harris has really done the trick. The change to the new material suppliers and Harris' team building skills and morale boosting activities have really made a difference These comments were made after a plant tour, where the director observed a very contented workforce. and a review of the monthly performance reports. Included in the latest report were the following variances direct material $9240 favourable and direct labour $12 350 favourable. These variances were considered outstanding as they are small and they are favourable. (Magic Plastics budgeted material and labour costs are usually about $ 700 000 in total for a similar period.) Additional information: The company purchased and consumed 45000 kilograms of direct material at $15.40 per kilogram, and paid $32.50 per hour for 20900 direct labour hours of activity. Total units produced were 9500. A review of the company's standard cost records shows that each completed unit requires 4.2 kilograms of direct material at $17.60 per kilogram, and 2.6 direct labour hours at $28 per hour. Required: 1. On the basis of the information contained in the performance report, should Magic Plastics' management be concerned about its variances? Explain why. 2. Calculate the direct material and the direct labour variances. 3. Based on your answer to requirement 2, should management be concerned about the variances? Explain why? 4. Are things going as smoothly as the director of manufacturing believes? Evaluate the company's variances and determine whether or not the change to a new supplier and Harris' team building and morale boosting activities appear to be working. Explain why. 5. Consider each of the variances and explain whether or not these are likely to be an outcome of Harris' actions