Nice & Natural manufactures muesli bars for health food stores. The management accountant, Lionel, is unhappy with the standard costing system used by the business. The standard and actual amounts for Direct Materials and Direct Manufacturing Labour for May were as follows: 1. Muesli Bars Manufactured : Standard : 12,000 Actual : 13,464 2. Direct Material Costs : Standard : $60,000 Actual : $60,588 3. Direct Materials - Rice Flakes in Kilograms : Standard : 360 Actual : 410 4. Direct Materials - Carob in Kilograms : Standard : 24 Actual : 28 5. Direct Manufacturing Labour Costs : Standard : $54,000 Actual : $55,386 6. Direct Manufacturing Labour Hours : Standard : 3,000 Actual : 3,060 The standard costs are based on an independent survey conducted by an external consultant. Lionel had noticed that since the survey, unfavourable variances have been extremely rare. He has also observed that workers seem to have a lot of time to enjoy work breaks at the caf nearby. He is concerned that the production manager is aware of the spare time, however, he is unwilling to reduce the standard requirements because his performance looks better at the current standards. Required: a) Calculate the price and efficiency variances for Direct Materials - Rice Flakes and Carob, and Direct Manufacturing Labour in May. b)

Calculate the price and efficiency variances for Direct Materials - Rice Flakes and Carob, and Direct Manufacturing Labour in May. [9 marks]

Discuss the types of actions that employees may have taken to reduce the accuracy of the standards set by the external consultant. Why would employees take those actions? [6 marks]

What actions should be taken by Lionel to correct the standards currently being used? [5 marks]

If Lionel can obtain industry benchmarks for the estimated costs, discuss the advantages and disadvantages of using industry information to calculate the variances in a).