Marcus Ltd produces outdoor furniture for the hospitality industry. The furniture is made of moulded plastic. This cost card was developed for his best seller, the Negril Lounger.

Direct materials: 3kg x $125 per kg

Direct labour: 0.25 hours x $135 per hr

Variable overhead 0.25 hours x x $78 per hr

Fixed overhead 0.25 hours x $190 per hr

The following information relates to the month of November:

Units produced and sold 5 000

Materials purchased 19 500kg ($2 496 000)

Beginning inventory of materials 0kg

Ending inventory of materials 5 100 kg

Direct labour 1 300 hrs at $134 per hr

Variable overhead incurred $98 750

Fixed overhead incurred 231 250

Budgeted production for the period was 4 500 units

Required:

a) Calculate the following variances, stating clearly whether they are favourable (F) or unfavourable (U):

i. The direct materials price variance

ii. The direct materials usage variance

iii. The direct labour rate variance

iv. The direct labour efficiency variance

b) Using direct materials variances calculated, outline possible situations when a production manager may or may not be held responsible for a variance. Where you conclude that the production manager is not responsible, you should indicate the manager responsible for the variance and explain why.

c) Compute the fixed production overhead volume variance and explain your result