Q2

Question 2 (25 marks) Siu Lek Yuen (SLY) is a company specializes in producing one surgical mask product known as HappyWear. Each carton of HappyWear is budgeted to sell at $3,750. The company adopts a standard costing system in its operations. The following is the standard cost to produce one carton of HappyWear: $30 per roll $80 per hour Cost per Unit (S) 2,400 232 Direct materials Direct labour Factory overhead*: Variable Fixed 375 225 Factory overhead is allocated based on machine hours and 7.5 machine hours is expected to be used to produce one carton of HappyWear. The predetermined overhead rates for the month are developed based on a production capacity of 2,500 cartons. There are three managers in SLY: the merchandising manager, Yannie Lam, who is responsible for sourcing of materials; the production manager, Stephen Ho, who is responsible for the entire manufacturing operations and the sales manager, Wendy Cheung, who is responsible for the sales and marketing of Happy Wear. During the month of November, Yannie has decided to change the materials purchase to a new supplier. However, the workers complained that the materials from the new supplier yield a lot of waste due to impurities. The factory workers in SLY are very experienced in the production process. You have obtained the following information for the month of November based on the production of 2,625 cartons: Direct materials purchased Direct materials used Direct labour Variable overhead Fixed overhead Machine hours used Total sales 225,000 rolls @ $29.60 per roll 215,100 rolls $612,250 for 7,750 hours $1,093.750 $570,000 20,000 hours $9,646,875 SLY has no beginning raw materials and finished goods inventory. Also, there is no finished good inventory at the end of November. Question 2 (Continued) Required: (a) Determine the following variances: (i) direct materials price and quantity variances; (4 marks) (ii) direct labour rate and efficiency variances; (3 marks) (iii) variable overhead rate and efficiency variances; (3 marks) (iv) fixed overhead budget and volume variances; and (4 marks) (v) sales price and sales volume variances. (3 marks) (b) Discuss why price and quantity variances for direct materials, direct labour and variable overhead are separately computed. (2 marks) (c) Based on the variances computed in item (a) above and the information from the question, critically evaluate the performance of Yannie, Stephen and Wendy. (6 marks) [Total for Question 2: 25 marks]