Question
Melanies Matcha Iced Tea (Matcha Inc.) has prepared the following standard cost information per bottle of iced tea: Standard Quantity (or Hours) Standard Price (or
Melanies Matcha Iced Tea (Matcha Inc.) has prepared the following standard cost information per bottle of iced tea:
| Standard Quantity (or Hours) | Standard Price (or Rate) | Standard Cost |
Direct materials | 1.0 litre | $2.95/litre | $2.95 |
Direct labour | 0.2 hours | $16.05/hr | $3.21 |
Variable overhead | 0.2 hours | $2.05/hr | $0.41 |
Total standard cost per bottle | $6.57 |
The company allocates variable overhead based on direct labour hours. Last month, Matcha Inc. produced 1,200 bottles of matcha iced tea and incurred the following actual costs:
Direct materials: Purchased 1,400 liters of blended matcha at $2.75 per litre. 1,300 litres of blended matcha used in production of the 1,200 bottles.
Direct labour: 250 hours worked, for a total cost of $4,025.
Variable overhead: Total cost was $550.
Required (12 marks):
a) Part 1. Calculate the direct materials price and quantity variances. Label your variances and indicate if favourable or unfavourable. (4 marks).
Part 2. For each variance provide a brief discussion on the factor(s) or reason(s) the variance may have occurred in this situation. This discussion should go more in depth than, the price went up or down. It should explain why this may have occurred. (2 marks)
b) Part 1. Calculate the direct labour rate and efficiency variances. Label your variances and indicate if favourable or unfavourable. (2 marks)
Part 2. For each variance provide a brief discussion on the factor(s) or reason(s) the variance may have occurred in this situation. This discussion should go more in depth than, the price went up or down. It should explain why this may have occurred. (2 marks)
c) Calculate the variable overhead spending and variable overhead efficiency variances. Label your variances and indicate if favourable or unfavourable. (2 marks).
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