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Question 1 (18 marks) The Smith Corporation manufactures pet food. It has the following standards per finished unit for direct materials and direct manufacturing labour.
Question 1 (18 marks) The Smith Corporation manufactures pet food. It has the following standards per finished unit for direct materials and direct manufacturing labour. Direct materials: 10kg at $4.50 per kg. $45.00 Direct manufacturing labour: 0.5 hours at $30 per hour $15.00 The number of finished units budgeted for January was 10,000; 9,850 units were actually produced. Actual results in January were as follows: Direct materials 98,055kg used Direct Manufacturing labour: 4,900 hours $154,350 Assume there were no opening direct material inventory or finished goods inventory. During the month, materials purchased amounted to 100,000kg.at a total cost of $465,000. Input price variances are isolated upon purchases and input-efficiency variances are isolated at the time of usage. Required: 1. Compute the January price and efficiency variances of direct materials and direct manufacturing labour. (14 marks) 2. Comment, providing possible reasons, on the January price and efficiency variances. (2 marks) 3. Why might the firm calculate direct material price variances and direct material efficiency variances with reference to purchases and usage? (2 marks)
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