QUESTION 1: Standard Costing

Total mark for this question: 20 marks

[Suggested time: 36 minutes]

The liquid line departmental manager of Colgate Palmolive, which produces various personal care items including toothpaste is analysing the first 10 months of its performance. The standard ratio of direct labour hours (DLHs) to machine hours is 4:1. The standard labour rate is $15.08.

	Units produced	Machine hours	Standard DLH	Actual DLH	Direct labour efficiency variance
January	50 478	165.5	662.00	374.00	$4 343
February	31 943	100.3	401.20	214.00	2 823
March	185 179	552.0	2 208.00	1 068.00	17 191
April	212 274	713.8	2 855.20	1 495.75	20 501
May	48 390	160.0		364.00
June	82 436	232.0		536.50
July	36 208	104.0		283.00
August	33 483	96.0		317.50
September	31 560	96.0		328.50
October	28 191	72.0		158.00

REQUIRED

1. The departmental manager was rushing off to a meeting and asked you to do the following:

1. Calculate the Standard direct labour hours for the months of May to October (rounded off to 2 decimal places) (3 marks)

2. Calculate the Direct labour efficiency variance for the months of May to October. (3 marks)

3. Are the labour efficiency variances for the months of May to October favorable or unfavorable? Briefly explain. (2 marks)

2. Assuming the actual labour rate is $16.00, calculate the direct labour rate (price) variances for each of the 10 months and label it as F for favourable variance or U for unfavorable variance. (Round-off all variances to the nearest whole number) (5 marks)

3. Suppose management investigates all direct labour efficiency variances in excess of 20 per cent of standard cost. Which months variances will be investigated? (round-off all figures to the nearest whole number)

[Hint: Calculate the standard direct labour cost for the 10 months first]. Show ALL necessary workings. (5 marks)

4. Suggest possible causes for the variances that need to be investigated in requirement 3. (2marks)