Question
Lynden Ltd produced 7800 widgets during January. The accounting records indicated the following: Direct material purchased 25 000 kilograms @ $2.60 per kilogram Direct material
Lynden Ltd produced 7800 widgets during January. The accounting records indicated the following:
Direct material purchased | 25 000 kilograms @ $2.60 per kilogram |
Direct material used | 23 100 kilograms |
Direct labour used | 40 100 hours @ $18 per hour |
The widget has the following standard prime costs:
Direct material: 3 kilograms @ $2.50 per kilogram | $7.50 |
Direct labour hours: 5 hours @ $17 per hour | 85.00 |
Standard prime cost per unit | $92.50 |
Required:
1. For the month of January, calculate the following variances, indicating whether each is favourable or unfavourable:
a) Direct material price variance.
b) Direct material quantity variance.
c) Direct labour rate variance.
d) Direct labour efficiency variance.
2. Suggest possible explanations for each variance
3. What is management by exception? Briefly explain.
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