Question 02 (20 Points) Hamilton Company's Ironton Plant produces precast ingots for industrial use. Daniel Goulding, who was recently appointed general manager of the Ironton Plant, has just been handed the plant's contribution format income statement for October. Mr. Goulding was shocked to see the loss for the month, particularly because sales were exactly as budgeted. He stated, "I sure hope the plant has a standard cost system in operation. If it doesn't, I won't have the slightest idea of where to start looking for the problem." The plant does use a standard cost system, with the following standard variable cost per ingot: Standard Quantity Or Hours 4.00 Pounds .6 Hours .3 Hours (Machine Hours Standard Price or Rate 2.50 Per Pound 9.00 Per Hour Standard Cost $ 10.00 $ 5.40 Direct Materials Direct Labor 2.00 Per Hours Variable Manufacturing Overhead $ $ 0.60 16.00 During October the plant produced 5,000 ingots and incurred the following costs: a. Purchased 25,000 pounds of materials at a cost of $2.95 per pound. There were no raw materials in inventory at the beginning of the month. b. Used 19,800 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.) c. Worked 3,600 direct labor-hours at a cost of $8.70 per hour. d. Incurred a total variable manufacturing overhead cost of $4,320 for the month. A total of 1,800 machine-hours was recorded. It is the company's policy to close all variances to cost of goods sold on a monthly basis. Required: 1. Compute the following variances for October: a. Direct materials price and quantity variances. b. Direct labor rate and efficiency variances. c. Variable overhead rate and efficiency variances. 3. Pick out the two most significant variances that you computed in (1) above. Explain to Mr. Santiago possible causes of these variances