London Companys Forest City Plant produces precast ingots for industrial use. Anne-Marie Gosnell, who was recently appointed general manager of the Forest City Plant, has just been handed the plants income statement for October. The statement is shown below.

Gosnell was shocked to see the poor results for the month, particularly since sales were exactly as budgeted. She stated, I sure hope the plant has a standard costing system in operation. If it doesnt, I wont have the slightest idea of where to start looking for the problem.

	Budgeted		Actual
Sales (2,500 ingots)	$	125,000	$	125,000
Variable expenses:
Variable cost of goods sold*		20,425		25,530
Variable selling expenses		10,000		10,000
Total variable expenses		30,425		35,530
Contribution margin		94,575		89,470
Fixed expenses:
Manufacturing overhead		30,000		29,500
Selling and administrative		37,500		37,500
Total fixed expenses		67,500		67,000
Operating income (loss)	$	27,075	$	22,470

*Contains direct materials, direct labour, and variable manufacturing overhead.

The plant uses a standard costing system, with the standard variable cost per ingot details shown below:

	Standard Quantity or Hours		Standard Price or Rate			Standard Cost
Direct materials	2.0	kilograms	$	1.25	per kilogram	$	2.50
Direct labour	0.54	hours	$	10.00	per hour		5.40
Variable manufacturing overhead	0.27	hours*	$	1.00	per hour		0.27
Total standard variable cost						$	8.17

*Based on machine-hours.

Gosnell has determined that during October the plant produced 2,500 ingots and incurred the following costs:

a.	Purchased 6,300 kilograms of materials at a cost of $1.50 per kilogram. There were no raw materials in inventory at the beginning of the month.
b.	Used 4,900 kilograms of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)
c.	Worked 1,800 direct labour-hours at a cost of $9.50 per hour.
d.	Incurred a total variable manufacturing overhead cost of $1,080 for the month. A total of 900 machine-hours was recorded. It is the companys policy to close all variances to cost of goods sold on a monthly basis.

Required:

1.	Compute the following variances for October:

a.	Direct materials price and quantity variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

b.	Direct labour rate and efficiency variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

c.	Variable manufacturing overhead spending and efficiency variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

2-a.	Summarize the variances that you computed in requirement 1 above by showing the net overall favourable or unfavourable variance for October. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

2-b.	What impact did net variance figure have on the companys income statement?

3-a.	Pick out the two most significant variances that you computed in requirement (1) above. (Select all that apply)