Part B

Joshwood Slovakia has recently joined Kerikeri Baggage Limited, a sister company of Queenstown Baggage Limited, as a Business Analyst. While going through last years variance analysis report, he found that the company uses direct labour hours as the basis for applying variable manufacturing overhead costs. He also found that, last year, the companys labour efficiency variance was unfavourable. However, he noticed that variable overhead efficiency variance was missing in the last years report. Joshwood wonders whether the last years variable overhead efficiency variance was favourable or unfavourable. What do you think, and why?

[Maximum word limit: 120 words]

Question 4 Standard Costing and Variances (TOTAL: 20 marks) Part A Queenstown Baggage Limited has developed the following cost standards for the production of its leather backpacks: Standard cost per backpack $19.80 Leather (0.9 metre x $22 per metre) 7 Direct labour (1.3 hours x S9 per hour) Variable overhead (1.3 hours x 515 per hour) $11.70 $19.50 Variable overhead at the company is applied on the basis of direct labour hours. The actual results for last month were as follows: Number of backpacks produced 15,000 Direct labour hours incurred 18,800 Metres of leather purchased 14.500 Metres of leather used in production 14,100 Cost of leather purchased $306,675 Direct labour cost $159,800 Variable overhead cost $26.760 Required (show your calculations): i. Calculate the materials price variance, and mention three potential reasons for the variance result. (5 marks) Type in answers here (expand the space as needed) ii. Calculate the materials quantity variance, and mention three potential reasons for the variance result (5 marks) Type in answers here (expand the space as needed) iii. Calculate the labour efficiency variance, and mention three potential reasons for the variance resul