Question 1 (25 Marks)

IOL Ltd manufactures ceramic lamps. It has set up the following standards per finished unit for direct materials and direct manufacturing labour:

Direct materials: 10 kg 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 5 000; 4 550 units were actually produced.

Actual results in January were:

Direct materials: 45 055 kg used
Direct manufacturing labour: 2 250 hours	$70 875

Assume that there was no beginning inventory of either direct materials or finished units. During the month, materials purchases amounted to 50 000 kg, at a total cost of $232 500. Price variances are isolated upon purchase. Efficiency variances are isolated at the time of usage.

Required

1. Calculate the January price and efficiency variances of direct materials and direct manufacturing labour. (8 marks)
2. Prepare journal entries to record the variances in requirement (a) above. (10 marks)
3. Comment on the January price and efficiency variances of IOL Ltd. (2 marks)
4. Why might IOL Ltd calculate direct materials price variances and direct materials efficiency variances with reference to different points in time? (5 marks)