PROBLEM1(10 marks)

Precision Wood Products produces quality wooden desks. The company uses a standard cost system and has set the following standards for materials and labour:

Oak (6.5 kilograms @ $7.90)

$51.35

Direct labour (3.75 hr @ $32)

$120.00

Total prime cost

$171.35

During the year, Precision produced 22,000 desks. Actual oak purchased was 142,750 kilograms at $8.40 per kilogram. There were no beginning or ending inventories of oak. Actual direct labour was 83,200 hours at $31.50 per hour.

Required:

1. Compute the actual cost of oak for the production of 22,000 desks. (1)
2. Compute the cost of oak that should be incurred for the production of 15,000 desks. (2)
3. Calculate the total material variance, the material price variance and the material usage variance and label as either "favourable" or "unfavourable". (5)
4. Which variance would you likely investigate and whom would you interview for explanations (i.e. Purchasing Manager or Production Manager). (2)