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Question 1 (32 marks) Apple Company manufactures wooden chairs and uses a standard cost system which sets predetermined overhead rates on the basis of direct

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Question 1 (32 marks) Apple Company manufactures wooden chairs and uses a standard cost system which sets predetermined overhead rates on the basis of direct labor-hours. At the beginning of the year, the company expected to manufacture and sell 1,800 units. The normal selling price of each chair is $200. The company's standard cost of production is given in the table below. Standard Cost (Based on 1,800 units) Direct materials, 3 metres at $25/metre Direct labor, 2.5 hours at $28/hour Variable manufacturing overhead cost Budgeted fixed manufacturing overhead cost $75/unit $70/unit $30/unit $45/unit During the year, the company produced and sold 1,600 units of product and incurred the following costs: Actual Cost Actual materials purchased 5,200 metres @ $24.5/metre Actual materials used in production 4,900 Actual direct labor cost incurred 4,200 hours @ $29/per hour Actual variable manufacturing overhead $54,200 Actual fixed manufacturing overhead $80,000 Total revenue $332,800 Required: (a) Determine the following variances, and state clearly whether each is favourable or unfavourable. (i) direct materials price, inventory, and quantity variances; (ii) direct labor rate and efficiency variances; (iii) variable overhead rate and efficiency variances; (iv) fixed overhead budget and volume variances; and (v) sales price and sales volume variances. (18 marks) (b) Identify the persons in Apple Company that should be held responsible for the direct materials price and quantity variances as well as the direct labor rate and efficiency variances. Explain potential causes for the above four variances. (6 marks) (c) Explain and discuss possible interrelationships between the above variances which you have calculated in (a). (5 marks) (d) Using the sales variances, discuss the marketing strategy of Apple Company. (3 marks) (Total for Question 1: 32 marks)

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