QUESTION 2 (20 MARKS: 48 MINUTES)

The following standard costs were developed for one of the products of ELJAY Sdn Bhd (ESB):

STANDARD COST PER UNIT

RM

Direct materials3 feet @ RM4.00 per foot12.00

Direct labor5 hours @ RM8.00 per hour40.00

Variable overhead5 hours @ RM4.00 per hour20.00

Fixed overhead5 hours @ RM6.00 per hour30.00

Total standard cost per unit102.00

The following information is available regarding the company's operations for the period:

Units produced40,000

Materials purchased240,000 feet at RM4.40 per foot

Materials used150,000 feet

Direct labor220,000 hours at RM8.30 per hour Overhead incurred:

VariableRM770,000

FixedRM900,000

Budgeted fixed overhead for the period is RM960,000, and the standard fixed overhead rate is based on the expected capacity of 160,000 direct labor hours.

REQUIRED:

(a)Compute the following variances. Indicate whether it is Favorable (F) or Unfavorable (UF) variance.

(i)material price variance

(ii)material usage variance

(iii)labor rate variance

(iv)labor efficiency variance

(v)variable overhead spending variance

(vi)variable overhead efficiency variance

(vii)fixed overhead spending variance

(viii)fixed overhead volume variance

(16 Marks)

(b)Refer to (a) (ii), explain TWO (2) possible reasons why the variance occurred.

(4 Marks