Question 1

The standard cost information for Lithuania Limited is given below

$

Direct materials 8 kgs at $27.00 per kg 216.00

Direct labour 40 hours at $39.50 per hour 1,580.00

Variable overheads 40 hours at $18.50 per hour 740.00

Fixed overheads 40 hours at $21.00 per hour 840.00

3,376.00

The budgeted output is 70,000 units.

Overheads are absorbed on the basis of direct labour hours.

The actual results are outlined below:

The actual output is 75,000 units

Direct materials 630,000 kgs costing $15,750,000

Direct labour 3,050,000 hours costing $106,750,000

Variable overheads 3,050,000 hours costing $45,750,000

Fixed overheads 3,050,000 hours costing $54,900,000

Required:

(a)Compute the following variances:

Direct material usage

Direct material price

Direct labour efficiency

Direct labour rate

Variable overhead efficiency

Variable overhead spending

(vii)Fixed overhead volume

(viii)Fixed overhead spending

(b) What are ideal standards and what are currently attainable standards? Of these two

standards which is adopted by most companies and why?

(c ) Explain how variances are used to evaluate managers performance.