My Subject Is Management Accounting

Question No 2 ARIEL company produces many products for household use. Company sells products to storekeepers as well as to customers. Detergent-DX is one of the products of ARIEL. It is a cleaning product that is produced, packed in large boxes and then sold to customers and storekeepers. ARIEL uses a traditional standard costing system to control costs and has established the following materials, labor, and overhead standards to produce one box of Detergent-DX: Direct materials: 2 pounds of Material X, Cost per Pound PKR 12. Direct labor: 0.5 hours required for 1 box cost of hour is PKR 24 Variable manufacturing overhead equals labor Hours ie. 0.5 Hrs for one box with hourly rate PKR 5.00 During August 2012, company produced and sold 4,000 boxes of Detergent-DX. 9,000 pounds of direct materials were purchased @ PKR 12.50 per pound. Out of these 9,000 pounds, 6,000 pounds were used during August. There was no inventory at the beginning of August. 1600 direct labor hours were recorded during the month at a cost of PKR 40,000. The variable manufacturing overhead costs during August totaled PKR 7,200. Required: (15 Marks) 1. Compute materials price variance and materials quantity variance. (Assume that the materials price variance is computed at the time of purchase.) 2. Compute direct labor rate variance and direct labor efficiency variance. 3. Compute variable overhead spending variance and variable overhead efficiency variance. 4. Why Variances are measured, and what does Favorable and Unfavorable mean. Explain in the context of the