Problem 4. (17 marks)

Lucky Company produces silver medallions that are awarded to people around the world who commit random acts of kindness. The firms uses a standard costing system. The standard cost card for the medallions follows:

DM .11 ounces of silver @ $49.16 per ounce $5.41

DL .25 hours @ $25.43 per hour 6.38

VOH .34 MH @ $8.60 per MH 2.92

FOH .34 MH @ $15.64 per MH 5.32

Unit Cost $20.03

Silver is purchased from a mining operation in Argentina, La Tierrra. 1 pound of grade B silver costs $50 and 1 pound of grade A silver costs $75. Purchases of 100 pounds or more are subject to a 10% discount. In addition, cash purchases (made in Argentias currency) receive an additional 5% discount. La Tierra pays for all shipping at a rate of $5 per pound. Duties to import silver into Canada are about 15% of the declared value of each shipment. Lucky has decided to use grade B silver and to take advantage of both of the offered discounts.

Each finished medallion must weigh one tenth of a pound. First, any impurities in the silver must be removed. On average this results in the loss of about 5% of the weight of the silver. After that, the medallions are formed by melting the silver and pouring it into round forms. Spillage during this process amounts to about 3% of the molten silver. Finally the design must be stamped onto the face of the medallion. During this process, an average of 2% of the medallions break and must be discarded.

During the month of April, Lucky purchased 6,000 pounds of silver at a total cost of $295,300. 3,900 pounds were used to produce 30,000 medallions. A total of 6,680 DL hours were worked on silver medallions. The associated cost was $191,240. Overhead is applied on the basis of machine hours.

1. Compute the DMPV.

2. Compute the DMQV.

Problem 4. (continued)

3. Compute the DLEV.

4. Speculate as to what may have each variance, paying particular attention to any possible relationships.